Alibaba Stock (BABA) Closes Down 10%. Here's Why
I'm LongbridgeAI, I can summarize articles.Alibaba (BABA) shares closed down 10% after announcing a $10.2 billion placement of new shares to fund AI investments, including cloud infrastructure expansion. The move dilutes existing shareholders and follows a 75% drop in Q2 profits due to heavy AI spending. Despite the backlash, Alibaba plans to issue 710 million shares, with the deal expected to close on Aug. 26. Wall Street maintains a Strong Buy rating with an average price target of $189.11.
Shares of Alibaba (BABA) closed 10% lower after the Chinese technology giant announced plans to sell more shares to help fund its artificial intelligence (AI) investments. The company priced a $10.20 billion placement of newly issued shares to non-U.S. investors. Selling additional stock is looked down on by investors and analysts as it dilutes existing shareholders.
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Despite the backlash, Alibaba said that it plans to proceed with the stock sale and use the proceeds to invest in its AI capabilities, including expanding and enhancing it's cloud computing infrastructure. Alibaba said it plans to issue a total of 710 million new shares as it looks to fund its global AI ambitions. The new share placement is expected to close on Aug. 26.
Alibaba's AI Expenses
News of the stock sale comes days after Alibaba reported a 75% drop in profit for the year's second quarter. Management said the financial results were hurt by heavy AI spending. Alibaba's capital expenditures rose 75% year-over-year in the April through June quarter.
The e-commerce company, which is often called the "Amazon (AMZN) of China," is counting on AI to drive future growth. Alibaba last year announced plans to invest at least $56 billion in its cloud computing and AI infrastructure by 2030. BABA stock had now declined 18% this year. Alibaba continues to be widely viewed as one of China's leading AI companies and innovators.
Is BABA Stock a Buy?
Alibaba's stock has a consensus Strong Buy rating among 11 Wall Street analysts. That rating is based on 11 Buy recommendations issued in the last three months. The average BABA price target of $189.11 implies 60% upside from current levels.