Shares slid as Alibaba completed the largest Hong Kong equity raise in years, forcing investors to weigh a massive AI infrastructure bet against the immediate cost of owning a bigger pie cut into more slices.

710 Million New Shares Flood the Market at a Discount

On August 26, Alibaba completed an HK$80 billion placement of 710 million newly issued shares at HK$112.70 apiece. That price represented a discount to prevailing levels, and the deal expanded shares outstanding by roughly 3.7% — meaning every existing shareholder's claim on profits just shrank by that amount. The stock has fallen from $22,900 to $20,550 since the deal was announced, a drop of about 10% in a week, even as the broader tech sector rallied on a strong Nvidia outlook.

Every Dollar Goes Straight Into AI Spending

Alibaba said the placement was "undertaken to extend the Company's global AI leadership" and intends to use 100% of net proceeds to invest in AI capabilities, including expanding its AI infrastructure.

The company committed last year to investing at least 380 billion yuan (more than $50 billion) in cloud and AI infrastructure over three years, and said last week it has already spent nearly half of it.

Capital expenditures surged 75% year-over-year last quarter to RMB 67.7 billion ($10 billion), reflecting continued AI infrastructure investment. The equity raise signals internal cash generation alone cannot fund the build-out.

Cloud Growth Is Strong — But Profits Are Collapsing

Alibaba's cloud and AI businesses posted a 45% revenue increase in the June quarter, the fastest growth in 22 quarters. Yet the latest quarter's 9% total revenue growth alongside a 75% drop in net income underlines how central the AI bet has become.

Heavy spending has pushed fiscal 2026 free cash flow into negative territory.

CEO Eddie Wu said the company expects to break even on AI-related capex within three years based on current gross margins.

Dilution Undoes Years of Buybacks

Alibaba has spent $46 billion on share repurchases since 2019. The new issuance reverses a chunk of that shareholder-friendly math. Every new share is effectively a claim that the AI infrastructure will eventually earn its cost — and Alibaba's cloud growth now has to make good on that. If the three-year breakeven timeline slips, the dilution will look far more expensive in hindsight.