--- title: "Alibaba's Share Price Drops After Rights Offering; Nomura: Dilution Below 4%, Maintains Buy Rating; High Bond Market Costs Cited as Primary Reason for Rights Offering" type: "News" locale: "en" url: "https://longbridge.com/en/news/296744753.md" description: "Nomura stated that the market had widely anticipated Alibaba's need to seek external financing. The dilution from this fundraising is manageable, and the negative sentiment has been fully priced in. The company expects AI investments to break even within three years, with significant profit growth in its cloud business, while its T-Head chips build a core competitive barrier. Supported by stable cash flows from e-commerce, this fundraising may mark a new starting point for Alibaba's valuation reassessment after short-term volatility" datetime: "2026-08-24T06:28:10.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/296744753.md) - [en](https://longbridge.com/en/news/296744753.md) - [zh-HK](https://longbridge.com/zh-HK/news/296744753.md) generator: "portal-rs" --- # Alibaba's Share Price Drops After Rights Offering; Nomura: Dilution Below 4%, Maintains Buy Rating; High Bond Market Costs Cited as Primary Reason for Rights Offering Alibaba's surprise rights offering triggered brief market volatility, but Nomura believes the actual impact on existing shareholders is far less than market concerns suggested. Furthermore, it helps eliminate the long-standing uncertainty over financing that had hung over the stock price. On August 23, Alibaba announced plans to place approximately 710 million new ordinary shares, raising about HK$80 billion (approximately US$10.2 billion). The placement price was set at HK$112.70 per share, representing an 8.4% discount to the previous closing price in Hong Kong. Affected by the news of the rights offering, Alibaba's Hong Kong-listed shares came under pressure today, falling more than 8%. Nomura analysts Jialong Shi and Rachel Guo calculated that the issuance of approximately 710 million new shares will dilute existing shareholders' equity by about 3.7%. They consider this level of dilution "manageable" and believe it does not change the positive investment thesis for the company. Notably, upon completion of the rights offering, Alibaba's total cash and cash equivalents are expected to increase from approximately US$70 billion at the end of the June quarter to about US$80 billion. ## Choosing Rights Offering Over Debt Issuance: High Bond Market Costs Are Key Nomura's report pointed out that **the choice of financing method, rather than the financing act itself, was the core surprise in this transaction—the market had widely anticipated that Alibaba would need to seek external financing, especially following the intensive fundraising by U.S. hyperscale cloud computing enterprises this year.** Nomura analysts admitted they previously expected Alibaba to rely more on debt financing, as equity financing appeared to have higher dilution costs given the current stock valuation. However, the report also noted that **the global surge in AI capital expenditure has driven a sharp increase in bond issuances by hyperscale cloud companies. Credit spreads have widened, concessions on new bond issues have increased, and investor subscription multiples have declined, significantly reducing the relative economic attractiveness of debt financing. In this context, Alibaba's shift to equity financing is "understandable."** Previously, Alibaba's U.S.-listed ADRs plummeted 8.6% in a single day on August 21, precisely due to the premature fermentation of market concerns regarding its potential financing needs—this drop occurred just one day after management expressed an optimistic outlook for its AI cloud business. Nomura believes that **the finalization of this rights offering announcement helps eliminate this uncertainty hanging over the stock price, allowing the market to refocus on the company's fundamentals.** ## AI Investment Returns: Break-even Within Three Years, Cloud Business Margin Continues to Expand Alibaba explicitly stated that the funds raised will be entirely invested in full-stack AI capabilities, covering foundational large models, Model-as-a-Service (MaaS), cloud infrastructure, and self-developed chips. Nomura considers Alibaba to be one of the companies with the most comprehensive layout in China's AI ecosystem. Regarding AI investment returns, management provided relatively clear guidance during the recent quarterly earnings call: incremental AI infrastructure investments can typically be recouped within three years. Factors such as improved margins on AI products, increased usage proportion of self-developed T-Head chips, customer prepayment arrangements, and alternative computing solutions can further improve capital efficiency. The fundamentals of the cloud business also support this optimistic expectation. Alibaba Cloud's external cloud revenue grew by 45% year-over-year in the June quarter, marking the ninth consecutive quarter of acceleration. Management expects the growth rate in the September quarter to exceed 50%, with further acceleration thereafter. The adjusted EBITA margin for AI cloud services has risen from about 7% a year ago to 11.6%, and management expects to continue moving toward the long-term target of 20% in the coming quarters. MaaS Annual Recurring Revenue (ARR) exceeded RMB 16 billion by August and is expected to surpass RMB 30 billion by the end of this fiscal year. ## Self-developed T-Head Chips: Emerging Competitive Advantages Nomura's report specifically highlighted that Alibaba's self-developed chip business provided more detailed disclosures for the first time, which warrants investor attention. **The T-Head chip matrix covers GPUs, CPUs, storage, and networking chips, enabling Alibaba to optimize computing power, storage, and networks at the system level without relying entirely on third-party hardware. Management disclosed that cumulative shipments of previous-generation T-Head AI chips have exceeded 500,000 units. The latest generation of domestic AI chips began deployment on the Alibaba Cloud platform in super-node form in August and has entered the stage of large-scale commercialization. The next generation of domestic AI chips is expected to enter the tape-out phase in the second half of 2026, aiming to support both large-scale model training and inference.** Nomura believes that if the supply of advanced GPUs remains constrained, Alibaba's self-developed chip capabilities will become an increasingly important competitive advantage. In particular, if T-Head proves capable of supporting the training of large-parameter foundational large models at commercial scale, it could substantially enhance the market competitiveness of Alibaba Cloud and Alibaba's foundational model business. ## E-commerce Business: Stable Cash Flow Supports AI Investment While making heavy investments in AI, Alibaba's e-commerce segment is gradually shifting towards profit stability and cash generation. Alibaba E-commerce Group (AEG)—covering China commerce, China instant retail (QC), and international digital commerce—reported an adjusted EBITA of approximately RMB 39.7 billion in the June quarter, basically flat. Customer Management Revenue (CMR) from China commerce decreased by 7% year-over-year, but grew by about 1% year-over-year after excluding structural factors, largely meeting market expectations. Management pointed out that the China commerce business has shown improvement so far in the September quarter. The unit economics of the instant retail business continue to optimize, with the full-year loss expected to narrow by about 50% year-over-year, while maintaining the guidance for achieving profitability in FY29. Nomura believes that Alibaba is increasingly emphasizing the profit stability and cash-generating ability of its mature e-commerce business, rather than sacrificing profitability for growth. This provides a more solid foundation of profits and cash flow for the group's continued investment in AI. ### Related Stocks - [BABA.US](https://longbridge.com/en/quote/BABA.US.md) - [KBAB.US](https://longbridge.com/en/quote/KBAB.US.md) - [BABX.US](https://longbridge.com/en/quote/BABX.US.md) - [BABO.US](https://longbridge.com/en/quote/BABO.US.md) - [BABU.US](https://longbridge.com/en/quote/BABU.US.md) - [BABW.US](https://longbridge.com/en/quote/BABW.US.md) - [BBYY.US](https://longbridge.com/en/quote/BBYY.US.md) - [09988.HK](https://longbridge.com/en/quote/09988.HK.md) - [8604.JP](https://longbridge.com/en/quote/8604.JP.md) - [NMR.US](https://longbridge.com/en/quote/NMR.US.md) - [89988.HK](https://longbridge.com/en/quote/89988.HK.md) - [HBBD.SG](https://longbridge.com/en/quote/HBBD.SG.md) ## Related News & Research - [Alibaba DAMO Academy Launches Liver Cancer AI Model, Detects 15 Missed Cases in 2 Mths](https://longbridge.com/en/news/296755303.md) - [Alibaba Q2 Preview: Mixed setup ahead of earnings, high expectations from AI business](https://longbridge.com/en/news/296380137.md) - [SoftBank plans $6.29 billion corporate bond issuance amid AI fundraising boom](https://longbridge.com/en/news/296729829.md) - [Alibaba Gives Nvidia's Older AI Chips an Unexpected Vote of Confidence](https://longbridge.com/en/news/296532983.md) - [Tencent and Alibaba expand APAC cloud infrastructure](https://longbridge.com/en/news/296328375.md) --- > **Disclaimer: This article is for reference only and does not constitute any investment advice.**