Alibaba Raises $10.2 billion exclusively for AI
Alibaba set the price of the new shares at 112.70 HKD per share and offered investors a total of 710 million new shares. Gross proceeds are expected to reach 80 billion HKD, and approximately 79.7 billion HKD after transaction costs. Upon completion of the offering, the new shares will represent approximately 3.57% of the company’s diluted share count, meaning existing investors will hold a slightly smaller stake in the company following the transaction. The offering price was approximately 3.6% lower than the reference price of the shares and approximately 9% lower than the average price derived from trading in American Depositary Shares over the previous five trading days. The use of the funds is particularly significant. Alibaba stated that it will invest 100% of the net proceeds into its full-stack AI capabilities and the expansion of its AI infrastructure. This funding is therefore not intended for general corporate needs or acquisitions, but directly for the company’s technological transformation. It is the largest secondary public offering by a Hong Kong-listed company and one of the largest such transactions worldwide in 2026.
The AI business is growing by 45%, but the company’s profit fell by three-quarters
The reason Alibaba is willing to invest an additional $10 billion, or more, is evident in its latest results. The group’s revenue for the quarter ending June 30 rose 9% year-over-year to 268.95 billion RMB, which amounted to approximately $39.6 billion. However, net income fell by 75% to 10.44 billion RMB, and operating income decreased by 57% to 15.16 billion RMB. A major factor behind this was rising technology investments. Capital expenditures reached 67.68 billion RMB, approximately 10 billion USD, and increased by 75% year-over-year. Meanwhile, the AI Cloud and Compute Services segment saw the exact opposite trend. Revenue in this segment rose by 45% to 48.44 billion RMB, and its adjusted EBITA more than doubled to 5.63 billion RMB. Revenue from AI-related products alone reached 12.38 billion RMB, and Alibaba recorded its twelfth consecutive quarter of triple-digit year-over-year growth in this category. The company has also completed roughly half of its extensive 380 billion RMB investment program, which is focused on AI and cloud infrastructure through 2029. Alibaba is thus currently sacrificing some of its current profitability in favor of a sector that is growing significantly faster than its traditional e-commerce business.
Investors are grappling with both stock dilution and the return on their billion-dollar investments
The market’s reaction showed that the growth of the AI business alone is not enough for investors. Following the announcement of the offering, Alibaba’s Hong Kong shares fell 8.3% on August 24 to 112.80 HKD and were trading at virtually the same level as the price of the new shares.* Investors focused primarily on share dilution and the question of why a company with approximately $69.9 billion in cash and other liquid investments needs to issue additional shares to finance AI. The new offering will increase the number of outstanding shares by approximately 3.6%, meaning that each existing shareholder will own a smaller stake in the company upon completion of the offering unless they increase their stake. On the other hand, interest in the offering was very strong. The offering was significantly oversubscribed, and major long-term investors and sovereign wealth funds were among the interested parties. While Alibaba was thus able to raise a large amount of capital, it also created a clear obligation to the market. Investors will expect management to ensure that the billions invested in computing capacity, proprietary chips, and Qwen models generate sufficient revenue and profitability growth to offset today’s dilution and the sharp rise in capital expenditures. [1]
Alibaba’s stock performance over the past five years*
Management is buying shares and signaling confidence in its own strategy
An important signal came directly from Alibaba’s management shortly after the market’s sharp reaction. On August 25, Chairman Joe Tsai purchased an additional 720,000 Hong Kong shares of the company for approximately 82 million HKD, with an average purchase price of 113.47 HKD per share. Together with purchases made by CEO Eddie Wu, the company’s two top executives invested more than HKD 200 million in Alibaba shares over the course of two days. The purchases came immediately after the announcement of an HKD 80 billion share offering and following a decline in the stock price, which heightens their significance for investors monitoring management’s confidence in its own strategy. At the same time, Alibaba continues to develop its own T-Head chips, expand its cloud capacity, and advance the Qwen family of models; according to the company, its latest processor, the Zhenwu M890, is already being used by more than 650 external customers across more than 20 industries. The outcome of this strategy will be decisive for the company’s future direction. Alibaba is no longer just a dominant Chinese e-commerce player, as it is shifting an increasing portion of its capital, growth, and management focus toward AI infrastructure and cloud services. If it can translate the strong growth in these segments into more substantial profits, today’s offering could fuel the company’s next phase of growth. However, if returns on investment remain weak, pressure on profits and shareholder dilution could become a major issue for the entire strategy. [2]
[1,2] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements do not guarantee future results. They involve risks and other uncertainties that are difficult to predict. Actual results may differ materially from those expressed or implied in any forward-looking statements.
* Past performance is no guarantee of future results.
Sources:
https://data.alibabagroup.com/ir_filings/HKEX/09988/en/202608242026082400003/2026082400003.pdf
https://www.alibabagroup.com/zh-HK/document-2028384807859257344
https://www.alibabagroup.com/en-US/document-2027233133950140416
