Alibaba shares fell sharply in Hong Kong after the Chinese technology company announced an HK$80 billion ($10.2 billion) share placement to non-U.S. investors. The company plans to use the proceeds to expand its artificial intelligence infrastructure as it increases spending on AI and cloud computing.
Alibaba shares fell as much as 10% in Hong Kong trading on Monday after the Chinese technology company announced an HK$80 billion ($10.2 billion) placement of newly issued shares to non-U.S. investors.
The company said it will use all of the net proceeds from the offering to strengthen its full-stack artificial intelligence capabilities, including expanding and upgrading its AI infrastructure.
Alibaba will issue 710 million new shares at HK$112.70 each, representing a discount to the stock's previous closing price of HK$123. The shares were last trading at HK$112.70, down 8.4%. The placement is expected to close on Wednesday.
The fundraising comes shortly after Alibaba reported a sharp decline in quarterly profit as the company increased spending on artificial intelligence. Its net income for the June quarter fell 75%, while capital expenditure increased 75% to 67.7 billion yuan.
READ ALSO: Alibaba Shares Fall 4% After Net Income Drops 75% as AI Spending Surges
Alibaba's U.S.-listed shares were also down 3.4% in premarket trading, reflecting investor concerns over the impact of increased AI investment on near-term profitability.
The company has been accelerating spending on AI as it seeks to make the technology a larger source of future growth. Alibaba previously announced plans to invest at least 380 billion yuan over three years in cloud computing and AI infrastructure.
Vey-Sern Ling, senior equity advisor at UBP, told CNBC that Alibaba was well positioned to pursue AI growth because of its cloud computing business and AI models. He cautioned, however, that the company's profits could weaken in the near term as capital expenditure increases.
Alibaba is not alone among Chinese technology companies in increasing investment in AI infrastructure. Tencent's capital expenditure rose 65% from the previous quarter to 52.8 billion yuan in the June quarter as it continued investing in computing infrastructure for its AI businesses.
The latest share placement gives Alibaba additional funding to accelerate its AI infrastructure expansion, but the immediate market reaction highlights investor concerns over the cost of that strategy and its effect on short-term returns.
Source: CNBC and Alibaba Group official disclosures.
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