Alibaba shares tumble as investors question whether AI spending splurge is justified

By Jules Rimmer

Alibaba weakness comes amid broader skepticism about the cost of the AI buildout

Alibaba provided an upbeat assessment of 2Q earnings last week but investors took a different view and dumped stock.

Shares in global tech giant Alibaba tumbled almost 9% in Hong Kong on Monday, after announcing it's sold HK$80 billion ($10.2 billion) to invest in artificial intelligence.

Alibaba (HK:9988) shares closed at HK$112.10, below the HK$112.70 placement price, with investor uncertainty about the company's ability to generate profits from its AI spending reflecting a wider concern among global investors about the returns to be derived from AI capex.

The negative response to the Alibaba fundraising coincided with setbacks for other luminaries in the AI buildout. Softbank (JP:9984) stock dropped almost 5% in Japan after issuing $6.3 billion of bonds, and the Financial Times carried a story that Anthropic's latest frontier AI model, Fable 5, was struggling to attract users as cheaper tools were proving more attractive.

Meanwhile, the Silicon Data LLM Token Expenditure Index, a financial benchmark tracking the price corporates pay to access AI tools, registered another fall to $1.05. Rich Privorotsky, head of Delta One trading at Goldman Sachs, told clients in a desk note published Monday that this index had now fallen 40% since the end of June. He also noted that OpenAI announced a price cut for its latest model, ChatGPT 5.6, over this last weekend.

For Alibaba, however, the stock weakness came on the back of disappointing second-quarter results announced Aug. 20 where net profit fell by 75% year over year and free cash flow turned negative to minus $6.6 billion owing to AI capex commitments. Alibaba shares have declined by roughly one fifth in 2026 but it's still among the top half-dozen largest stocks in China with a market capitalization of around $300 billion.

In the earnings statement, Alibaba's CEO Eddie Wu had boasted of his company's "strong quarter, driven by the improving commercialization of our full-stack AI capabilities" that he claimed had "put Alibaba in a superior position to capture the substantial growth of demand for AI and AI compute."

The markets had interpreted the results less favorably, however, with the U.S.-listed depositary receipts (BABA) plunging 8.57% to $119.34 Friday. In Monday pre-market trading Alibaba ADRs were 3.47% lower at $115.20. In common with other AI developers and AI cloud providers, Alibaba suffered from the skepticism about the sustainability of AI capex that has been a feature of trading in global markets over the summer.

Well-known investor Michael Burry, who writes the "Cassandra Unchained" substack column posted on X Sunday that a few months ago he had sold out of his position in Alibaba to buy JD.com (JD). Now he says he would only reenter the stock if it halved from here because "issuing shares is its new paradigm."

Some observers have questioned the logic behind the share offering because as recently as the second quarter of 2026, Alibaba had bought back $162 million of stock and given it was trading at HK$173 in January, those share repurchases took place at much higher prices.

-Jules Rimmer

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08-24-26 0513ET