Alibaba's surprise share placement triggered a brief market tremor, but Nomura believes the actual impact on existing shareholders is far smaller than market fears suggest, and it also helps remove the long-pending financing uncertainty that has been hanging over the stock price.

On August 23, Alibaba announced a proposed placement of approximately 710 million new ordinary shares, aiming to raise around HK$80 billion (about US$10.2 billion), with the placement price set at HK$112.70 per share, representing an 8.4% discount to the previous Hong Kong closing price. Following the placement news, Alibaba's Hong Kong-listed shares came under pressure today, falling more than 8%.

Nomura analysts Jialong Shi and Rachel Guo estimate that the issuance of roughly 710 million new shares will dilute existing shareholders' equity by about 3.7%, which they view as "manageable" and not altering the positive investment thesis for the company. Notably, upon completion of the placement, Alibaba's total cash and cash equivalents will increase from approximately US$70 billion at the end of the June quarter to around US$80 billion.

Equity Placement Over Debt: High Borrowing Costs Are the Key Factor

The Nomura report points out that the choice of financing method is the core element that surprised the market in this transaction, rather than the financing itself—the market had widely anticipated that Alibaba would need to seek external funding, especially after U.S. hyperscale cloud companies ramped up their financing activities this year.

The Nomura analysts admitted that they had previously expected Alibaba to rely more heavily on debt financing, as equity dilution appears more costly given the current share price valuation. However, the report also notes that the global AI capital expenditure boom has driven a sharp increase in bond issuance by hyperscale cloud companies, with credit spreads widening, new-issue concessions expanding, and investor subscription multiples declining—making the relative economic appeal of debt financing markedly less attractive. Against this backdrop, Alibaba's shift toward equity financing is "understandable."

Earlier, Alibaba's U.S.-listed ADR had already plunged 8.6% on August 21, as concerns over its potential financing needs were priced in ahead of time—a decline that came just one day after management delivered an optimistic outlook on the AI cloud business. Nomura believes that the announcement of this placement actually helps eliminate the uncertainty hanging over the stock, allowing the market to refocus on the company's fundamentals.

AI Investment Returns: Payback Within Three Years, Cloud Margin Expansion Continues

Alibaba has clearly stated that the proceeds from this placement will be fully directed toward full-stack AI capabilities, covering foundation models, Models-as-a-Service (MaaS), cloud infrastructure, and self-developed chips. Nomura considers Alibaba one of the most comprehensively positioned players in China's AI ecosystem.

Regarding AI investment returns, management provided relatively clear guidance during the most recent earnings call: incremental AI infrastructure investments can typically be recovered within three years, with improvements in AI product margins, a higher utilization ratio of self-developed T-Head chips, customer prepayment arrangements, and alternative computing solutions all contributing to better capital efficiency.

The fundamentals of the cloud business also support this optimistic outlook. Alibaba Cloud's external cloud revenue grew 45% year-over-year in the June quarter, accelerating for nine consecutive quarters; management expects growth to exceed 50% in the September quarter, with further acceleration thereafter. AI cloud adjusted EBITA margin has risen from approximately 7% a year ago to 11.6%, and management expects it to continue progressing toward the long-term target of 20% over the coming quarters. MaaS annual recurring revenue (ARR) has surpassed RMB 16 billion as of August, and is expected to exceed RMB 30 billion by the end of this fiscal year.

Self-Developed T-Head Chips: Potential Competitive Advantage Emerges

The Nomura report specifically highlights that Alibaba's self-developed chip business has provided more detailed disclosures for the first time, which deserves investor attention.

The T-Head chip portfolio spans GPUs, CPUs, storage, and networking chips, enabling Alibaba to optimize computing, storage, and networking at the system level without relying entirely on third-party hardware. Management disclosed that cumulative shipments of T-Head's previous-generation AI chips have exceeded 500,000 units, and the latest-generation domestic AI chips began deployment on Alibaba Cloud's platform in August in a super-node form, entering the stage of large-scale commercialization. The next-generation domestic AI chip is expected to enter the tape-out phase in the second half of 2026, with the goal of supporting both large-scale model training and inference.

Nomura believes that if the supply of advanced GPUs remains constrained, Alibaba's self-developed chip capabilities will become an increasingly important competitive advantage. In particular, if T-Head proves capable of supporting the training of large-parameter foundation models at commercial scale, it could substantially enhance the market competitiveness of Alibaba Cloud and Alibaba's foundation model business.

E-Commerce Business: Stable Cash Flow Supporting AI Investments

Amid heavy AI investment, Alibaba's e-commerce business segment is gradually shifting toward profit stability and cash generation.

Alibaba E-commerce Group (AEG)—covering China commerce, China instant retail (QC), and international commerce—posted adjusted EBITA of approximately RMB 39.7 billion in the June quarter, roughly flat. China commerce customer management revenue (CMR) declined 7% year-over-year, but after excluding structural factors, it grew approximately 1%, broadly in line with market expectations.

Management noted that the China commerce business has shown improvement so far in the September quarter; the instant retail business continues to optimize unit economics, with full-year losses expected to narrow by approximately 50% year-over-year, while maintaining the guidance for profitability in fiscal year 2029.

Nomura believes that Alibaba is increasingly emphasizing profit stability and cash generation in its mature e-commerce businesses, rather than pursuing growth at the expense of profitability, which provides a more solid earnings and cash flow foundation for the group's continued investment in AI.