Alibaba's $10 bln share sale starts AI countdown

New York and Hong Kong-listed Alibaba on August 23 announced it has priced a HK$80 billion ($10.2 billion) share placement to "invest in its full stack AI capabilities, including to expand and enhance its AI infrastructure". The company plans to sell 710 million ordinary shares at HK$112.70 per share, a 3.6% and 8.4% discount to the New York and Hong Kong stock's last closing price, respectively, on August 21. The share placement was not registered under U.S. securities laws as an offshore transaction, meaning American investors were not eligible to participate, Alibaba said. The deal is expected to be completed on August 26. Alibaba's Hong Kong-traded shares were down 8.3% at HK$112.8 by late morning on August 24. Notably, before the announcement, Alibaba's Hong Kong-traded shares were up by more than a third since late June, thanks to advancements in its flagship open-source Qwen models. As of Friday, the stock traded on roughly 16 times forward earnings, per LSEG, above Tencent's 13 times and Alibaba's five-year average of 12 times. Wu's AI disclosures are refreshing in an industry known for hazy projections and circular financing. The hard part now is to deliver on his promises. They have justified this cash burn by flagging the anticipated need to monetise massive demand for AI models, agents and apps. Usefully, Alibaba has gone even further by laying out a timeline for investors: it expects a three-year payback period on its AI capex based on current gross margins, potentially shortening as profitability improves. The group's estimate that its AI equipment is useful for five years implies a better-than-expected "mid-teens" return on invested capital, according to analysts at Morgan Stanley who had previously pencilled in a base case of 13%. That specific payback period, rare even among Western cloud computing and AI giants like OpenAI and Anthropic, is welcome amid rising scrutiny of when global investments in the sector will generate returns, if at all. That, plus an 8.4% share price discount, may have helped with Sunday's blockbuster share offering — Hong Kong's largest primary follow-on ever, per Reuters. The sale was nearly three times oversubscribed, according to someone familiar with the deal, with strong demand from sovereign wealth funds and long-only investors. Alibaba has set itself an unusually explicit deadline. China's $286 billion e-commerce group is raising $10 billion in a record Hong Kong share placement to fund its AI bets. This comes just days after the company led by Eddie Wu reported a 75% plunge in quarterly earnings from a year ago, thanks to soaring AI-related capital expenditures. By providing a concrete timeline for recouping those hardware costs, the firm has both helped catalyse necessary investment and kicked off a countdown. China's computing power arms race is straining balance sheets among the country's tech giants. In the three months to June, Alibaba racked up $10 billion in capex, an increase of 75% year-on-year, blaming more expensive chips and components plus lumpy procurement cycles. Rival Tencent also splashed out roughly $9 billion in the same period, more than double the previous year. As a result, both firms reported negative free cash flow in the quarter.

Alibaba's $10 bln share sale starts AI countdown

Share placement details

Market reaction and valuation

Investors get a rare payback estimate

Alibaba sets a timeline for AI payback

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