Alibaba's Market Value Plunges By $20B As Cloud Unit Spin-Off Plans Get Shelved

In the latest turn of events, Alibaba Group BABAF has put a halt to its plans to spin off its cloud segment, leading to a sharp drop in its market value by $20 billion. This development, triggered by the uncertainties surrounding U.S. export restrictions on AI chips, resulted in a 10% downturn in Alibaba’s shares listed in Hong Kong.

What Happened: As reported by Reuters, Alibaba’s sudden decision has led to the steepest single-day fall in its shares in over a year. The unforeseen move has sparked doubts among investors about potential undisclosed issues within the company, as suggested by Jon Withaar, the Singapore-based head of Asia special situations at Pictet Asset Management.

The reversal by Alibaba echoes the concerns raised by Chinese social media and gaming firm Tencent Holdings, which is also considering domestic alternatives in the wake of U.S. export restrictions.

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Why It Matters: Alibaba, once the most valuable stock in Asia, has seen its value shrink to less than a quarter of its October 2020 zenith of $830 billion. This decline can be traced back to a tech sector crackdown by Beijing, a decelerating Chinese economy, and Alibaba’s own internal challenges.

This latest move by Alibaba casts a shadow over the broader issues impacting China’s tech companies, especially considering the surprise resignation of Daniel Zhang, the former head of Alibaba’s cloud division, back in September.

Despite the uncertainties, Alibaba remains dedicated to expanding its cloud business and investing in AI drivers, as highlighted by Alibaba Chairman Joseph Tsai during a post-earnings call. The company reported second-quarter earnings aligning with analysts’ projections, with CEO Eddie Wu emphasizing the need for each segment to independently face the market while promising a strategic review to distinguish “core” and “non-core” businesses.

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