Alibaba shares dropped on Monday after the company said it would raise money by issuing new shares. This move lowered expectations that Alibaba could avoid the expensive competition in AI spending that is shaping the tech industry.
On Sunday, Alibaba announced it had agreed to sell 710 million new shares to investors outside the U.S. at 112.70 Hong Kong dollars each, or about $14.38 per share. The sale will raise around $10.2 billion.
After the announcement, Alibaba’s shares in Hong Kong dropped sharply. American depositary receipts, which each represent eight ordinary shares, also fell.
It was not surprising that Alibaba decided to raise money for AI investment. In its latest earnings report, the company said revenue from AI products more than doubled for the twelfth quarter in a row, even though net profit dropped 76% from last year and capital spending rose 75%. Alibaba is one of several Chinese companies offering AI models at much lower prices than American rivals, but these lower prices do not always mean lower development costs. Chinese AI firms still depend on less efficient local hardware because U.S. export rules limit their access to advanced chips.
Alibaba’s new fundraising shows that the global race to invest in AI is costly for companies everywhere.
