Alibaba Group’s market value plummeted by approximately $20 billion as it abandoned plans to spin off its cloud business, attributing the decision to uncertainties surrounding U.S. restrictions on chip exports for artificial intelligence applications in China.
This shocking strategy reversal had a significant impact on Asian markets, with Alibaba’s Hong Kong shares experiencing their largest single-day drop in over a year, down by 10%.
The unexpected move raised questions about undisclosed issues within the company.
Jon Withaar, Head of Asia Special Situations at Pictet Asset Management, expressed surprise, emphasizing the need to consider potential behind-the-scenes factors.
Alibaba’s apprehensions about U.S. export curbs align with similar concerns expressed by Tencent Holdings earlier in the week, as both companies anticipate difficulties in sourcing essential chip supplies from U.S. firms.
Once the most valuable stock in Asia, Alibaba’s valuation has dwindled to less than a quarter of its peak value, partly due to its central role in China’s technology sector crackdown and the slowing Chinese economy.
While Alibaba referred to Chairman Joseph Tsai’s remarks during an earnings call for insight into the IPO’s shelving, the broader challenges facing Chinese tech firms due to export restrictions were underscored by this development.
In March, Alibaba unveiled its restructuring plans, which included carving out the cloud business into six separate units.
Analysts estimated the cloud division’s worth at $41-$60 billion, highlighting potential scrutiny from Chinese and international regulators due to the vast amount of data it handles.
Alibaba’s quarterly earnings report also revealed the postponement of the Freshippo groceries business listing.
Additionally, the news that the family trust of co-founder Jack Ma intended to sell 10 million American Depository Shares likely influenced Alibaba’s stock performance.
Chairman Joseph Tsai emphasized the company’s new focus on expanding the cloud business and investing in artificial intelligence (AI).
Some analysts believe that retaining the cloud unit could aid Alibaba’s AI ambitions, as the ban on chips could impact its long-term ability to offer AI-related products and services, aligning with China’s growing demand for AI computing.
Alibaba reported second-quarter revenue of 224.79 billion yuan ($31.01 billion), in line with analysts’ expectations.
CEO Eddie Wu outlined the company’s future strategy, emphasizing the independence of each business unit and a strategic review to distinguish between “core” and “non-core” businesses.
Despite challenges, Alibaba intends to proceed with the listing of its logistics arm, Cainiao, in Hong Kong, and explore external fundraising for its international digital commerce unit, which includes platforms like Lazada and Alibaba.com.
Overall, Alibaba’s decision to retain its cloud business reflects its commitment to adapting to changing market conditions and focusing on AI-driven growth opportunities.