HONG KONG: Alibaba shares fell sharply on August 24 after the Chinese e-commerce and cloud computing company launched a US$10.2 billion share sale at a steep discount to finance its growing investment in artificial intelligence.

Alibaba said it would sell HK$80 billion ($10.2 billion) of new shares at HK$112.70 each, an 8.4 percent discount to the closing price on August 21. The proceeds will fund chips, AI infrastructure and models.

Its Hong Kong-listed shares fell as much as 10.5 percent before paring losses in afternoon trading to trade roughly in line with the placement discount.

The sale comprises 710 million ordinary shares, equivalent to 3.6 percent of the company's enlarged outstanding share capital.

Despite the share-price decline, the offering attracted strong demand, drawing $28 billion in orders, including $6 billion from long-only and sovereign investors, according to three people familiar with the matter.

About 40 percent of the order book will go to long-only and sovereign investors, including major sovereign wealth funds in Europe, Asia and the Middle East, two of the people said.

One source said investors included the Qatar Investment Authority, Norway's Norges wealth fund and Hillhouse. Alibaba, Hillhouse, QIA and Norges did not immediately respond to requests for comment.

Alibaba chairman Joe Tsai bought 720,000 Hong Kong shares at an average price of HK$112 each, spending about HK$80 million in total, according to stock exchange disclosures. Chief Executive Eddie Wu bought 350,000 shares at an average price of HK$111.60, totaling HK$40 million.

AI has become Alibaba's biggest source of revenue growth as e-commerce growth stagnates, while its Qwen models have become some of China's most popular AI models.

Some investors, however, remain concerned about execution. "Alibaba's DNA is in e-commerce, not advanced tech," said Yang Tingwu, vice general manager of asset manager Tongheng Investment.

"No matter how much it invests in AI hardware, it will likely be outmaneuvered by competitors in tech innovation."

The placement is the largest-ever follow-on offering of new shares by a Hong Kong-listed company and the third-largest globally this year, behind equity offerings of nearly $85 billion by Alphabet and $20 billion by Intel.

The sale comes a week after Alibaba reported a 75 percent year-on-year drop in quarterly net profit, mainly due to AI-related spending.

Alibaba has committed nearly half of its three-year capital expenditure plan of 380 billion yuan ($56.5 billion). At its earnings presentation, the company said AI computing investments have a "high certainty" of generating returns.

Wu said those investments are expected to break even within three years, and possibly within 2.5 years, as margins improve and proprietary chips replace third-party hardware.