Chinese e-commerce juggernaut Alibaba faced a substantial setback as it witnessed a staggering $20 billion erosion in market capitalization following its decision to abandon the spinoff and listing plans for its cloud computing business. The move, announced on Thursday, came in response to the challenging landscape created by U.S. export restrictions on advanced chips.
Alibaba, a formidable competitor to U.S. tech giant Amazon, disclosed that it would not proceed with the spinoff of its Cloud Intelligence Group, citing uncertainties arising from U.S. export restrictions. The Cloud Intelligence Group competes with major players in the cloud services sector, including Amazon Web Services, Microsoft Azure, and Google Cloud Platform.
Alibaba’s CEO, Joe Tsai, addressing investors on Thursday’s call, stated, “Instead, we will focus on developing a sustainable growth model based on emerging AI-driven demand for networked and highly scaled cloud computing services.”
Before the announcement, Alibaba’s market cap at the close of Thursday’s trading session in Hong Kong stood at 1.65 trillion Hong Kong dollars ($211.6 billion). However, on Friday, in the aftermath of the decision, the market cap plummeted to 1.49 trillion Hong Kong dollars ($191.1 billion), translating to a loss of $21.1 billion, according to CNBC calculations based on FactSet data.
Alibaba’s Hong Kong-listed shares have experienced a nearly 15% decline year-to-date, in contrast to the broader Hang Seng index, which recorded an 11.2% decrease during the same period.
Investors had initially anticipated a spun-off entity for Alibaba’s cloud business that could potentially achieve a higher valuation. Analysts had estimated the Cloud Intelligence Group to be worth between $41 billion to $60 billion in March, as reported by Reuters. However, concerns were raised about potential regulatory scrutiny both in China and internationally due to the substantial amount of data managed by the unit.
The development underscores how Alibaba, as one of China’s major tech players, has become entangled in the tense geopolitical tensions between the U.S. and China. The decision to halt the cloud spinoff plan sheds light on the challenges companies face amid the evolving global landscape.
Alibaba has been heavily investing in artificial intelligence (AI) to keep pace with U.S. peers in the tech sector. The company integrates AI into its products and services, utilizing it for tailored product recommendations, data analysis in industrial settings, and marketing development on its various e-commerce platforms.
In October, Alibaba unveiled Tongyi Qianwen 2.0, an upgraded version of its artificial intelligence model. This move signifies Alibaba’s commitment to advancing AI technologies in a competitive global landscape dominated by U.S. tech giants.
As Alibaba navigates these challenges, the shelving of the cloud spinoff plan underscores the intricate dynamics and uncertainties faced by major tech companies amid geopolitical tensions and regulatory scrutiny.