Alibaba shares dropped sharply in Hong Kong trading on Monday. The stock fell as much as 10% after the company announced a large new share sale.
The Chinese tech company priced an 80 billion Hong Kong dollar placement of newly issued shares. That works out to about $10.2 billion.
The shares were sold to investors outside the United States. Alibaba said all of the money raised will go toward its AI plans.
Share Placement Details
The company will issue 710 million new shares. Each share was priced at HK$112.70.
That price is lower than Friday's closing price of HK$123 per share. By Monday, shares were trading 8.4% below that closing price.
The placement is expected to close on Wednesday. Alibaba's U.S. listed shares also fell, dropping 3.4% in premarket trading.
Alibaba said the funds will support its full AI efforts. This includes building and improving its AI infrastructure.
The company has been investing heavily in this area. It sees AI as a major part of its future growth.
Profit Drop and AI Spending
The share sale comes shortly after Alibaba released its latest earnings report. The company reported a 75% drop in profit for the quarter ending in June.
Heavy spending on AI was the main reason for the profit decline. Capital spending rose 75% during the quarter, reaching 67.7 billion yuan.
Vey-Sern Ling, a senior equity advisor at UBP, spoke with CNBC after the earnings report. He said Alibaba is well positioned to pursue growth in AI.
He pointed to the company's cloud computing business and its AI model as strengths. He also said profits could stay weak in the near term while spending continues to rise.
Alibaba made a pledge last year regarding its AI investment plans. The company said it would spend at least 380 billion yuan on cloud computing and AI infrastructure over three years.
Other Chinese tech companies have also increased their AI spending. Tencent's capital expenditure rose 65% from the previous quarter, reaching 52.8 billion yuan during the same June quarter.
That spending went toward computing infrastructure. Tencent has been working to turn its AI models into revenue.
Alibaba's new shares are set to be delivered once the placement closes this week. Investors will be watching how the company's AI spending affects future earnings reports.
