After scrapping its cloud business spin-off plans, Hong Kong shares plummeted by 10% on Friday due to challenges arising from U.S. export restrictions on electronics utilized in artificial intelligence software.
This significant drop, possibly the most substantial single-day decline in over a year, resulted in a $20 billion decrease in the Chinese tech giant’s market value.
The announcement of the surprising reversal of the plan late on Thursday triggered the initial industry response in Asia. The company’s U.S.-listed securities concluded the day with a 9% decline.
Nomura analyst Shi Jialong expressed concerns in a statement, stating, “The cancellation of the entire AliCloud spin-off is concerning.”
Tencent Holdings (0700), a Chinese social media and gaming firm, echoed similar apprehensions this week in light of Alibaba’s worries regarding the U.S. export restrictions disclosed by Washington in October. HK) asserted that these regulations would necessitate seeking domestically sourced alternatives.
Alibaba, once valued at around $830 billion in October 2020 at its peak, has seen its worth dwindle to less than a quarter as the Taiwanese economy decelerated and the e-commerce company became a focal point of Beijing’s technology sector crackdown.
The recent developments concerning Alibaba underscore the broader challenges faced by China’s tech enterprises, including the hurdles posed by export restrictions, making it harder to procure crucial chip supplies from U.S. firms.
Alibaba had unveiled plans to separate its cloud division in March as part of its most extensive overhaul in its 24-year history, restructuring the business into six distinct units.
Initially estimated to be valued between \(41 billion and \)60 billion, analysts cautioned that due to the vast volume of data it oversees, both Chinese and foreign authorities might scrutinize its listing.
The Hangzhou-based company also deferred the listing of its Freshippo grocery store following the release of its quarterly results on Thursday.
Furthermore, reports emerged on Thursday that Jack Ma, Alibaba’s co-founder and former CEO, intended to sell 10 million American Depository Shares in Alibaba, which impacted the stock positively.
Despite Ma’s disengagement from operational matters, UBS analyst Kenneth Fong remarked, “We believe Ma’s sale of Alibaba at a reduced valuation could dampen sentiment.”
Prioritizing AI Development
During a post-earnings call on Thursday, Alibaba Chairman Joseph Tsai disclosed the company’s shift towards focusing on bolstering the cloud business and supporting its artificial intelligence (AI) initiatives.
Some analysts suggest that the reversal of the spin-off decision could bolster Alibaba’s AI endeavors.
While the company is apprehensive about the device embargo’s long-term adverse effects on its ability to deliver products and services, it underscores the importance of maintaining the cloud infrastructure given China’s escalating demand for AI computing, as per US Tiger Research analyst Bo Pei.
Alibaba reported second-quarter revenue of 224.79 billion yuan (\(31.01 billion), aligning with analysts’ projected \)22.32 billion.
During the call, Alibaba CEO Eddie Wu outlined the company’s future strategy, emphasizing that each business segment would be assessed independently to differentiate between “core” and “non-core” operations.
Alibaba confirmed its intention to proceed with the listing of Cainiao, its transportation division, which filed for a public offering in Hong Kong in September. Additionally, preparations are underway to secure external funding for its global online trading arm, overseeing platforms like Lazada and Alibaba.com.
