Alibaba, Samsung Shares Slide as AI Spending Collides With Investor Demands for Returns

Alibaba and Samsung Electronics shares fell sharply on Monday as investors reacted to two very different consequences of the artificial intelligence boom: Alibaba’s need to raise billions of dollars to finance surging AI investment and Samsung’s decision to return a record amount of cash to shareholders that still fell short of expectations.

Alibaba shares dropped about 8% in early Hong Kong trading after the Chinese e-commerce and cloud computing giant finalized an HK$80 billion ($10.21 billion) share placement to fund its expansion in artificial intelligence infrastructure.

Alibaba priced 710 million new shares at HK$112.70 each, an 8.4% discount to the stock’s previous close. The transaction is the largest primary follow-on offering by a Hong Kong-listed company and the world’s third-largest this year, behind share sales by Alphabet and Intel.

The sharp decline in Alibaba’s shares illustrates the immediate cost of financing the company’s AI ambitions. The placement provides Alibaba with a substantial pool of capital, but the issuance also dilutes existing shareholders and signals that the company’s AI expansion will require significantly more funding before it generates returns.

Alibaba has said all of the proceeds will be used for AI-related development, including infrastructure.

Last week, Alibaba reported that it had already spent almost half of its three-year capital expenditure programme, while its quarterly net profit plunged 75% from a year earlier, largely because of higher AI-related spending.

The company has nevertheless become more optimistic about the economics of those investments. Alibaba said it expects the payback period for its AI investments to fall to about 2.5 years from three years as demand for AI services increases. That creates a crucial test for the company: whether the revenue generated by AI services can grow quickly enough to justify the enormous upfront spending required to build computing capacity.

Alibaba is betting heavily that it can.

The company has pledged to invest 380 billion yuan ($56.54 billion) over three years in AI and cloud infrastructure. Its expansion continued last week when Alibaba Cloud opened its third data center in South Korea, bringing its network to 104 availability zones across 30 regions.

The investment strategy places Alibaba in direct competition with global technology companies that are also committing hundreds of billions of dollars to AI infrastructure. But investors appear increasingly focused on the difference between spending on AI and generating returns from it.

Alibaba’s share-price reaction suggests that shareholders are not willing to treat higher AI expenditure as an automatic positive. The company needs to demonstrate that additional data centres, computing capacity and AI models will translate into sustainable revenue and cash flow.

Samsung Too

The same tension is visible in South Korea, although from a different angle.

Samsung Electronics shares fell more than 8% in early trading after the world’s largest memory-chip maker announced a record shareholder-return programme that investors viewed as insufficient relative to the profits being generated by the AI-driven semiconductor boom.

Samsung said it expects to return between 90 trillion won and 110 trillion won ($65 billion to $80 billion) to shareholders this year, including 30 trillion won in cash dividends in the third quarter.

The proposed distribution is five times Samsung’s previous record, set in 2020.

Yet the size of the programme failed to satisfy investors who had expected a greater proportion of the company’s AI-related windfall to be returned through share buybacks and cancellations.

This matters because dividends distribute cash to shareholders but do not directly reduce the number of shares outstanding. Buybacks and share cancellations can provide more direct support to earnings per share and the stock price by reducing the share count.

Samsung has maintained its commitment under its 2024-2026 shareholder-return policy to allocate 50% of free cash flow generated during the three-year period to shareholders.

But investors had hoped the company would go further as booming demand for high-bandwidth memory and other advanced chips drives profits across the semiconductor industry.

Rival SK Hynix, which has benefited strongly from demand for AI memory, took a more aggressive approach. SK Hynix said it plans to buy back and cancel 40 trillion won of treasury shares and allocate more than half of its free cash flow generated between 2025 and 2027 to shareholder returns.

The contrast helps explain the different market reactions.

SK Hynix shares fell about 2.5% on Monday, but Samsung declined more than 8%, while the benchmark KOSPI fell 3.1%.

“Unlike SK Hynix, Samsung Electronics did not mention the possibility of raising its existing shareholder return policy, nor did it announce a plan to cancel treasury shares that could more directly contribute to the stock price increase, which is disappointing,” Sohn In-joon, an analyst at Eugene Securities, said in a report.

Samsung’s ownership structure also complicates its ability to rely heavily on buybacks. Large buybacks could push the combined ownership of Samsung Life and Samsung Fire above regulatory limits, potentially requiring the affiliates to sell shares to bring their combined stake below 10%.

As a result, much of Samsung’s remaining shareholder-return allocation is expected to come through dividends rather than buybacks.

Kim Soo-hyun, head of research at DS Investment & Securities, estimated that of the remaining 60 trillion won to 80 trillion won, only about 10 trillion won to 20 trillion won could be directed toward share buybacks and cancellations.

Samsung Life and Samsung Fire also fell sharply, declining 9.9% and 8%, respectively, as investors adjusted their expectations around the implications of Samsung’s capital-return strategy.

Samsung said its board will decide on the remaining payouts in January 2027, with cash dividends, share buybacks and share cancellations all under consideration.

“Big capital returns, slightly below expectations,” Morgan Stanley said in a report, adding that investors will need to focus on Samsung’s next shareholder-return framework, which will take effect next year.

The contrasting reactions to Alibaba and Samsung reveal an important feature of the AI investment cycle. Companies such as Alibaba face the challenge of convincing shareholders to tolerate enormous capital expenditure today in exchange for potentially higher AI revenue in the future. For chipmakers such as Samsung and SK Hynix, the challenge is almost the reverse. AI demand is already producing substantial cash flows, and investors want a larger share of those gains returned to them rather than reinvested or retained.

In other words, the AI boom is creating two competing demands on corporate balance sheets: technology companies need unprecedented amounts of capital to build the infrastructure required for AI, while shareholders are demanding evidence that those investments will generate adequate returns.

Alibaba’s $10.2 billion placement is seen as a bet that the returns will come later, while Samsung’s record payout is an attempt to demonstrate that the returns are already arriving. The market reaction on Monday shows that investors are becoming less willing to accept either argument without evidence.