(Yicai) Aug. 24 -- Alibaba Group Holding’s stock sank after the Chinese internet giant said it will raise HKD80 billion (USD10.2 billion) through as discounted share sale to bankroll its push into artificial intelligence.

Alibaba [HKG: 9988] closed 8.5 percent lower at HKD112.50 (USD14.35) per share in Hong Kong today. In pre-market trading in New York, the company’s shares [NYSE: BABA] were down 3.6 percent at USD115 each as of 4.57 a.m. local time.

Alibaba intends to sell 710 million new shares at HKD112.70 apiece to non‑US investors, the Hangzhou-based firm revealed in a stock exchange filing yesterday. That represented an 8.4 percent discount on its closing price on Aug. 21. All of the proceeds will be used to develop full-stack AI capabilities, including expanding and enhancing AI infrastructure, it said.

In a follow-up announcement early today, Alibaba said it will place the shares by Aug. 26. After deducting placement commissions and expenses, the net proceeds are expected to top around HKD79.7 billion, it pointed out.

A softer share price following a stock offering is not uncommon, as the new shares dilute existing shareholder equity, often leading to a perceived loss of value in their holdings and triggering a near-term sell-off.

This will be Alibaba’s first share placement since its secondary listing in Hong Kong in 2019. The decision to raise such a large amount of capital highlights the growing financial strain that AI development is imposing even on the largest technology businesses.

Alibaba still has ample cash, its fiscal first-quarter earnings report showed last week. Net cash generated from operating activities rose 11 percent to CNY22.9 billion (USD3.8 billion) in the three months ended June 30 from a year ago. The company also had CNY474.5 billion (USD69.9 billion) in cash and cash equivalents, short‑term investments, and other unrestricted investments.

Still, the revenue generated by Alibaba’s main businesses cannot keep pace with the capital burn at its AI operations, with capital expenditure surging 75 percent to CNY67.7 billion in the period. In addition, the firm’s net free cash outflow topped CNY44.7 billion last quarter, compared with CNY18.8 billion a year earlier, mainly due to higher spending on cloud infrastructure.

Capex was on the high side due to the timing of hardware deliveries and would not necessarily be repeated every quarter, Chief Executive Officer Eddie Wu said on Alibaba’s earnings conference call. Even so, the company plans to maintain an aggressive pace on infrastructure investment throughout this year, he added.

Underlying this is the imperative for technology giants to ramp up spending on AI infrastructure to maintain their respective leads, with the HKD80 billion share placement showing that Alibaba has no intention of slowing its AI‑driven investment push.

Despite the heavy outlays, Alibaba’s spending on AI computing power is expected to pay for itself within three years, Wu pointed out. The payback cycle could potentially move toward 2.5 years, with improved gross margins of AI‑powered products, he noted.

Editors: Tang Shihua, Martin Kadiev