Why Alibaba Stock Was Falling Today

Shares of Alibaba (BABA -10.29%) were taking a dive today after investors balked at the company’s big spending plans in cloud and artificial intelligence (AI).

As a result, the stock was down 9.7% as of 11:24 a.m. ET.

Image source: Alibaba.

Alibaba faces investor skepticism

It’s not unusual for investors to react poorly to massive capital expenditure layouts and it seems like that’s what’s happening here.

The Chinese tech giant, best known for its Tmall and Taobao e-commerce platforms, said today that it plans to invest at least $53 billion AI infrastructure over the next three years, making a similar move to big tech companies in the U.S.

However, its American peers have been greeted with some skepticism over the massive expenditures and now Alibaba is facing similar scrutiny, especially after the stock has soared in recent months.

Among the news rattling AI investors were reports that Microsoft was canceling some leases for data center capacity in the U.S., meaning it may have overestimated demand for AI computing.

What it means for Alibaba

The decision, in and of itself, isn’t a bad thing for Alibaba, and reflects the same investments its larger U.S. peers are making.

However, some investor skepticism seems reasonable given the company’s recent struggles, U.S. pressure on China’s chip imports, and other risks to the stock, including from another government crackdown.

A 10% sell-off seems steep for news of investment, which typically precedes growth, especially coming after a generally solid earnings report last week that included cloud revenue growth of 13%. Investors should overlook today’s decline as the AI spending could pay off, but expect the stock to be volatile over the coming months as the strategy plays out.