Chinese tech giant Alibaba plans to issue approximately 14 trillion won in new shares to invest in its artificial intelligence (AI) business. The company is rapidly increasing its infrastructure investments in data centers and semiconductors to remain competitive in the AI sector.
According to the China Business Journal, Alibaba announced on August 23 that it intends to issue 710 million new shares at a price of 112.7 Hong Kong dollars (about 20,000 won) per share to raise 80 billion Hong Kong dollars (approximately 14 trillion won) from investors outside the United States.
All funds raised will be allocated to AI-related projects, particularly focusing on expanding the infrastructure necessary for operating AI services, including data centers and computing equipment.
This marks Alibaba's first new share issuance since its listing on the Hong Kong Stock Exchange in 2019, indicating a rapid increase in the funds required for AI investments.
Alibaba's current cash position is not dire. As of the end of June, the company had approximately 474.5 billion yuan (about 97.5 trillion won) in cash and short-term investments. Cash generated from operations also rose to 22.9 billion yuan, an 11% increase compared to the same period last year.
However, the China Business Journal noted, "The issue is that the speed of investment in AI is much faster than the speed of cash generation."
In the second quarter of this year, Alibaba's capital expenditures reached 67.7 billion yuan, a 75% increase from the previous year. Capital expenditures are funds used by companies to acquire or upgrade physical assets such as data centers, servers, and factories.
As capital expenditures for AI infrastructure have surged, net income for the same period plummeted by 75%. Free cash flow also recorded a deficit of 44.7 billion yuan, significantly larger than the 18.8 billion yuan deficit from the same period last year.
With the intensifying competition in AI, the investment burden on China's big tech companies is increasing. Not only Alibaba, but Tencent also reported a 176% increase in capital expenditures to 52.784 billion yuan in the second quarter. Tencent also faced a free cash flow deficit of 13.8 billion yuan.
AI businesses require substantial computing power and data centers, leading to high initial investment costs. The industry often refers to AI as a "money-eating hippo."
Despite this, both Alibaba and Tencent have stated they will not reduce their AI investments, as falling behind in AI technology could weaken their future business competitiveness. Earlier this year, Alibaba announced a plan to invest 380 billion yuan in AI over the next three years. In fact, global tech giants are rapidly increasing their investments in AI model development and data center construction.
Alibaba CEO Daniel Zhang expects that the investment in AI will be recouped within about three years. He even suggested that if AI services grow and become more profitable, the payback period could be reduced to around two and a half years.
However, Michael Burry, the well-known short-seller from the film "The Big Short," publicly criticized Alibaba's share issuance. According to Bloomberg on August 23, Burry stated on social media shortly after the announcement of Alibaba's capital increase plan that he could not support it and revealed he had sold all his shares in the company. He claimed that Alibaba's stock is overvalued and that he would only regain interest if the price fell to half its current level.
Alibaba's stock has dropped 13.9% on the Hong Kong Stock Exchange this year, while its American Depositary Receipts (ADRs) have fallen by 18.6%.
* This article has been translated by AI.
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