Alibaba’s Cloud Business Decision Costs Over $20 Billion in Market Value

Chinese e-commerce titan Alibaba faced a staggering drop in market capitalization, losing over $20 billion in value after canceling plans to list its cloud computing division.

Alibaba chose to halt the spinoff of its Cloud Intelligence Group, attributing the decision to US export restrictions on advanced chips. The uncertainties caused by these curbs compelled the company to pivot away from the spinoff, focusing instead on cultivating sustainable growth driven by emerging AI-powered cloud services.

CEO Joe Tsai highlighted this shift during the investor call, outlining their strategy amidst intensifying competition with tech giants like Amazon Web Services, Microsoft Azure, and Google Cloud Platform.

The news saw Alibaba’s market cap plummet from 1.65 trillion Hong Kong dollars to 1.49 trillion Hong Kong dollars, marking a substantial $21.1 billion loss in market cap. This significant setback emerged as investors anticipated a higher valuation through the cloud division’s spinoff, previously estimated between $41 billion to $60 billion.

Analysts voiced concerns over potential regulatory scrutiny for the spun-off entity, considering the extensive data management involved, which could attract oversight from both Chinese and international regulators.

Market response to the decision was evident as U.S.-listed Alibaba shares dipped around 2%, following a prior 9% drop. Morgan Stanley revised its price target for Alibaba shares to $110 from $150, prompting a shift in investment focus to Tencent, indicating a reevaluation of market sentiments.

The scenario underscores Alibaba’s entanglement in geopolitical tensions between the US and China. The company’s investments in AI align with efforts to compete with US counterparts, evident in the launch of Tongyi Qianwen 2.0, a robust language model representing a significant leap in AI development.

Alibaba’s decision to forgo its cloud business listing marks a pivotal moment, reflecting the evolving landscape of global tech competition and the intricate intersection of market dynamics with geopolitical complexities.