Shares of Chinese technology giant Alibaba fell about eight per cent in early trading in Hong Kong on Monday after the company completed an HK$80 billion ($10.21 billion) share placement to raise funds for its expanding artificial intelligence operations.
Alibaba priced 710 million newly issued shares at HK$112.70 each, representing an 8.4 per cent discount to the previous closing price of its Hong Kong-listed shares.
The sizeable capital raising comes as the e-commerce and cloud computing group steps up spending on artificial intelligence, including the construction and expansion of infrastructure needed to support growing demand for AI services.
The offering is the largest-ever primary follow-on share sale by a company listed in Hong Kong and ranks as the third-largest globally so far this year, behind share offerings by Alphabet and Intel.
Funds to support AI infrastructure
Alibaba said the proceeds would be used to finance its artificial intelligence development plans, including the expansion of AI-related infrastructure.
The move reflects the company's increasingly aggressive push into AI as competition intensifies among Chinese and global technology companies to build computing capacity and develop AI-powered services.
The latest share sale also comes at a time when Alibaba is already committing substantial amounts of capital to the sector.
The company said last week, while releasing its quarterly financial results, that it had already used nearly half of its three-year capital expenditure programme.
Alibaba also brought forward its expected payback period for its AI investments, cutting the projected timeframe to two and a half years from three years, citing strong and rapidly increasing demand for AI services.
Despite the optimism surrounding its AI business, the company's increased spending has weighed heavily on its bottom line.
Alibaba's quarterly net profit fell 75 per cent compared with the same period a year earlier, with the company attributing the sharp decline primarily to higher spending related to artificial intelligence.
Global AI spending race
The new share placement underlines the scale of Alibaba's commitment to developing the infrastructure required to compete in the rapidly evolving AI market.
The company has previously pledged to invest 380 billion yuan ($56.54 billion) over three years in AI infrastructure.
As part of that strategy, Alibaba Cloud, the company's digital technology and cloud computing division, last week opened its third data centre in South Korea.
The expansion increased Alibaba Cloud's global network to 104 availability zones across 30 regions, strengthening its capacity to provide cloud and AI services to customers across international markets.
The South Korean investment forms part of Alibaba's broader effort to build the computing infrastructure necessary to support the next phase of its AI business.
Investor concerns over dilution
The immediate fall in Alibaba's Hong Kong-listed shares reflects investor concerns surrounding the discounted share placement and the dilution that comes with issuing hundreds of millions of new shares.
By pricing the new shares below the previous market price, Alibaba was able to secure a substantial amount of fresh capital, but existing shareholders will see their ownership diluted by the new issuance.
The company is betting that the long-term returns from its AI investments will outweigh the near-term financial pressure and dilution.
Alibaba's decision to raise such a large amount of capital also illustrates the enormous funding requirements associated with the global AI race, where technology companies are investing heavily in data centres, computing power and other specialised infrastructure.
With demand for AI services continuing to grow, Alibaba appears increasingly focused on expanding capacity quickly, even as the associated costs put pressure on current earnings.
The latest capital raising therefore represents a significant financial commitment to Alibaba's AI strategy, while Monday's share-price reaction highlights the challenge of convincing investors that the substantial upfront investment will ultimately translate into sustainable growth and higher returns.