Alibaba Raises $10 Billion for AI Expansion Despite Shareholder Dilution Concerns
On August 25, BofA Securities analyst Joyce Ju reiterated a Buy rating and set a price target of $172.00 on Alibaba Group (NYSE:BABA) following the company's HK$80 billion ($10.2 billion) capital raise in Hong Kong’s largest follow-on offering to fund AI infrastructure development. The fundraising attracted significant demand, with orders totaling $28 billion, including $6 billion from long-only and sovereign investors. However, Alibaba shares fell as much as 10% due to concerns over dilution and the financial burden of increased capital expenditures. Alibaba plans to allocate all proceeds toward its full-stack AI capabilities, but this has raised worries about cash flow pressure. The company’s June quarter results showed a 38% drop in adjusted net income and free cash flow turning negative at roughly $6.6 billion due to cloud infrastructure spending. Despite these challenges, BofA remains optimistic, citing improving returns from Alibaba's AI investments. The firm highlighted strong growth metrics: Cloud-EBITA margin expanded to 12%, AI-related product revenue grew triple digits for twelve consecutive quarters, and pro forma net cash is expected to rise significantly post-fundraising. While the stock faces dilution concerns and short interest remains modestly elevated at around 42 million shares (1.78%–2%), BofA sees potential in Alibaba’s AI-driven growth strategy.
Tickers: $BABA
Topics: AI investment analyst rating earnings stock dilution