HONG KONG, Nov 17 (Reuters) – Shares of Alibaba Group (9988.HK) in Hong Kong fell 10% on Friday after it abandoned plans to spin off its cloud business, citing uncertainties fueled by restrictions US on exports to China of chips used in artificial technologies. intelligence applications.
The stock opened down 7.8%, then deepened its loss to 10.3% by mid-morning, heading for its biggest one-day decline in more than a year.
This is the first reaction in Asia since the announcement of the stunning reversal of strategy on Thursday evening. The company’s U.S.-listed securities closed down 9%.
“The cancellation of a full AliCloud spinoff is a negative surprise,” Shi Jialong, an analyst at Nomura, said in a note.
Alibaba’s concerns over U.S. export restrictions announced by Washington in October follow similar concerns raised this week by Chinese social media and gaming company Tencent Holdings (0700.HK), which said the restrictions would force it to seek domestically produced alternatives.
Alibaba, once Asia’s most valuable stock, was worth around $830 billion at its peak in October 2020, but is now valued at less than a quarter as the e-commerce company has taken the lead. scene in the crackdown on Beijing’s technology sector and that the Chinese economy has slowed. .
The latest news from Alibaba underscores the broader hurdles facing China’s big tech companies as export restrictions make it harder for them to secure critical supplies of chips from U.S. companies.
In March, Alibaba announced plans to spin off the cloud business as part of the biggest restructuring in its 24-year history, which split the company into six units.
Analysts estimated at the time that the cloud division could be worth between $41 billion and $60 billion, but warned that its listing could draw attention from Chinese and foreign regulators because of the scale of the data it manages.
FOCUS ON AI
Alibaba Chairman Joseph Tsai said in a post-earnings conference call on Thursday that the company would now focus on growing the cloud business and investing in its artificial intelligence (AI) engines. ).
Some analysts said reversing the split would help Alibaba’s AI development.
“The company believes that the chip ban could significantly and negatively affect its ability to offer products and services in the long term. But it also highlights the growing importance of retaining the cloud unit given the growing demand for “AI computing in China.” said Bo Pei, US analyst at Tiger Research.
The Hangzhou-based company, in announcing its quarterly results on Thursday, also suspended a proposed listing for its Freshippo grocery business.
Alibaba reported second-quarter revenue of 224.79 billion yuan ($31.01 billion), in line with the 224.32 billion expected by analysts, according to LSEG data.
Eddie Wu, Alibaba’s chief executive, detailed the company’s future strategy on the call, saying each of its businesses would face the market more independently and that it would conduct a strategic review to distinguish the businesses. “primary” and “non-essential”. .
Reporting by Donny Kwok and Josh Ye in Hong Kong, Casey Hall in Shanghai; Written by Anne Marie Roantree and Brenda Goh; Editing by Muralikumar Anantharaman
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