(Yicai) Sept. 24 -- Shares of Kingsoft Cloud Holdings, a cloud services provider controlled by Xiaomi founder Lei Jun, fell after the company said it would issue new shares at a discount to raise HKD2.8 billion (USD360 million) to develop artificial intelligence.

After sinking by as much as 11.3 percent in Hong Kong earlier today, Kingsoft Cloud [HKG: 3896] closed down 2 percent at HKD8.91 (USD1.15) per share. The stock is still nearly 50 percent up this year.

Kingsoft Cloud will issue 338 million new shares to at least six investors at HKD8.29 (USD1.07) each, the Beijing-based company announced late yesterday. That is 8.8 percent lower than its closing price on the same day.

It said 80 percent of the funds raised will be used to support the firm’s AI business, including expanding infrastructure and enhancing cloud service capabilities, and the rest will be used to supplement working capital.

Amid surging demand for AI capabilities, Kingsoft Cloud has been investing in infrastructure to enhance its computing power and storage capacity, and it aims to continue large-scale capital investment in the coming years. 

The company revealed its capital expenditure and spending on financial leases to acquire asset use rights totaled roughly CNY5 billion (USD702.3 million) in the first half of this year, up 155 percent from a year ago.

The new shares will make up about 7.5 percent of Kingsoft Cloud’s total share capital, and the stake held by Kingsoft, the largest shareholder, will drop from 35.6 percent to 32.9 percent after the issuance, while that of the second-largest owner, Xiaomi, will decline from 11.1 percent to 10.3 percent, it said. 

Kingsoft Cloud went public after being spun off from Kingsoft in 2020, but its business still relies heavily on the two major shareholders. Kingsoft Cloud’s revenue from Kingsoft and Xiaomi totaled CNY1.1 billion (USD154.5 million) in the first half, making up 26 percent of its total revenue, the company said.

If Kingsoft Cloud cannot increase its client count, its future development will be limited by the market performance of Xiaomi’s products, Li Zeming, investment director of ATTA Capital, told Yicai. Li also noted that Xiaomi has invested less in AI than other tech giants, which could impact the development of Kingsoft Cloud’s AI business.

Kingsoft Cloud reported a net loss of CNY771 million (USD108.3 million) for the first half, up 8 percent from the same period of last year. Revenue rose 18 percent to CNY4.3 billion (USD604 million).

Editors: Dou Shicong, Tom Litting