On Thursday, Alibaba declared that it wouldn't go ahead with the separation of its Cloud Intelligence Group, which rivalries Amazon Web Services and Microsoft Azure. It ascribed the choice to export limitations put in force by the U.S., which created a degree of doubt regarding the Group's fate. According to CNBC estimations of FactSet data, the spinoff plans brought about over $21 billion worth of losses in Alibaba's market capitalization.
On Thursday, Alibaba declared that they would no longer pursue a spinoff and listing of their Cloud Intelligence Group, which had been competing with Amazon Web Services, Microsoft Azure, and Google Cloud Platform. This announcement led to a reduction in the company's market capitalization of $20 billion. CEO Joe Tsai clarified on the investor call that this decision has been caused by US export restrictions on advanced chips, creating uncertainty for the company. In the wake of this news, Alibaba's market cap decreased to 1.49 trillion Hong Kong dollars ($191.1 billion) - an overall loss of $21.1 billion in market cap. As a result, their Hong Kong-listed shares are down roughly 15% year-to-date, greater than the Hang Seng Index's 11.2% decline in the same period. Tsai stated that their focus will now shift to creating a sustainable growth model due to the increased AI-driven demand for cloud computing services.
Investors were expecting the feasibility of a spin off entity for Alibaba's cloud business, which they estimated to be worth between $41 billion to $60 billion as per Reuters. However, due to the huge data that the unit manages, it was anticipated that the listing would face impediments from in-country and overseas regulators. This situation is reflective of the geopolitical tension between the U.S. and China. To stay competitive with U.S. rivals such Microsoft, Alphabet's Google, Meta, Amazon, Apple, and OpenAI, Alibaba has been investing heavily in artificial intelligence and integrating it into its products and services. This includes customizing product recommendations, analyzing data in industrial settings, and creating marketing pieces for Tmall, Taobao, and 1688. Recently, they introduced a new model called Tongyi Qianwen 2.0, a large language model which can generate AI applications like ChatGPT from OpenAI. They say it has been significantly improved from its predecessor released in April.
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