To The Moon

$Alibaba(BABA)$ has raised approximately $10.2 billion by selling new Hong Kong-listed shares after spending almost $10 billion on capital expenditure in a single quarter. The placement gives the company more capacity to build AI infrastructure, but it also transfers part of the risk to shareholders immediately. From this point, cloud growth must become cash generation quickly enough to justify dilution and the lost flexibility of a previously cash-rich balance sheet.

$BABA-W(09988)$ reported on August 20 for the quarter ended June 30. Revenue increased 9% to RMB269.0 billion, while AI Cloud and Compute Services revenue rose 45% to RMB48.4 billion. AI-related product revenue reached RMB12.4 billion and delivered a twelfth consecutive quarter of triple-digit growth. Segment adjusted EBITA increased 133% to RMB5.63 billion, showing that the cloud business is gaining operating leverage rather than buying growth without any incremental profit. Alibaba’s official June-quarter results provide the figures.

The bullish case is that Alibaba possesses a full stack that few Chinese competitors can match: Qwen models, proprietary T-Head processors, public-cloud infrastructure, orchestration software and commerce applications through which AI agents can reach consumers and merchants. Alibaba said more than 650 external customers across over 20 industries had adopted its Zhenwu processors through cloud services. It also launched the Wan3.0 video model on August 24, expanding the range of workloads that can consume its infrastructure. Reuters’ report on the Wan3.0 launch provides the product context.

The bearish evidence is concentrated in cash flow and capital allocation. Quarterly capital expenditure increased 75% to RMB67.7 billion, or about $10.0 billion. Free cash flow was an outflow of RMB44.7 billion, compared with an outflow of RMB18.8 billion a year earlier. Net income fell 75% to RMB10.4 billion. China e-commerce revenue declined 8%, and customer-management revenue fell 7%; excluding a contra-revenue effect, management estimated like-for-like growth of only 1%.

Alibaba announced the placement on August 23 and priced it on August 24: 710 million newly issued shares at HK$112.70 each, with 100% of net proceeds earmarked for full-stack AI and infrastructure. Closing is expected August 26, subject to customary conditions. Alibaba’s official placement announcement provides the terms. Reuters Breakingviews reported that management is targeting a mid-teens return on invested capital within three years. Its August 24 analysis explains why that target has become the central valuation test.

BABA fell 0.8% to $118.47 on August 24 after opening at $116.80, reaching $114.16 and recovering from an intraday high of $120.45 on 23.9 million shares. The recovery from the low indicates demand, but $120–$123 is now immediate resistance. Support lies at $114–$115 and then $108–$110; stronger resistance sits near $128–$130.

The discounted issuance and negative free cash flow favour waiting for a failed rebound rather than selling puts immediately. If BABA remains below $123 and rallies into resistance, a 30–45-day $130/$135 bear call spread—with the short call near 0.10–0.20 live delta—would define risk above the post-placement range. A close above $130 accompanied by improving free cash flow invalidates the setup. Maximum loss equals the $5 width minus credit.

The evidence leans neutral to moderately bearish. Cloud growth and cloud profit are excellent, but the scale of capital expenditure, negative free cash flow and discounted equity issuance place the burden of proof on management. The view would improve if cloud maintains roughly 40% growth while consolidated free cash flow turns positive; it would worsen if commerce weakens further, AI losses widen or another financing is required before the three-year return target becomes visible. This is personal opinion for education and is not financial advice; it is not an instruction to enter any trade.

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Disclaimer: This article is for informational and educational purposes only and does not constitute financial, investment, or trading advice. The views expressed are personal opinions based on publicly available information and are subject to change without notice. Investors should conduct their own research and consider their financial situation, risk tolerance, and investment objectives before making any investment decisions. I do not guarantee the accuracy or completeness of the information presented.