China keeps building its AI stack

Just like their US peers, Chinese tech companies are spending enormous sums to keep up in the global AI arms race. And just like their US peers, shares of Chinese companies are paying the price.

Alibaba priced a $10.2 billion sale of newly issued shares, the largest secondary offering ever by a Hong Kong-listed company, with all of the proceeds earmarked to pay for its “full stack” AI capabilities. The shares were sold to non-US investors at an 8.4% discount to Friday’s closing price.

Alibaba could use the cash: In its latest quarter, capex jumped 75% year-over-year, while revenue grew just 9% and net profit plunged 75%. Plus, last year the e-commerce company pledged to spend $56.5 billion on AI and cloud infrastructure over the coming three years. It’s already spent roughly half of that.

Michael Burry isn’t exactly helping investor confidence, either. The Big Short investor wrote on Sunday that he dumped Alibaba for rival JD.com and “cannot bless share issuances,” adding that Alibaba’s share price “would have to fall by half” before he became interested again.

Alibaba shares fell nearly 10% in Hong Kong as investors digested both the dilution and the growing price tag of its AI ambitions, though its US-listed shares remained largely flat today.

China’s memory boom

While Alibaba is spending heavily to build AI, China’s memory-chip makers are cashing in on the boom.

Last month, ChangXin Memory Technologies, or CXMT, surged 466% in its trading debut. CXMT makes DRAM, the high-speed working memory that computers, smartphones, and AI servers use to temporarily process data. CXMT has already grown into the world’s fourth-largest DRAM producer.

Now, another alphabet-soup chipmaker is lining up: Yangtze Memory Technologies, or YMTC, filed to raise as much as $4.9 billion in a Shanghai IPO. Unlike CXMT, YMTC specializes in NAND flash, the memory used to permanently store data.

YMTC generated $7 billion of revenue in the first quarter, nearly five times as much as a year earlier, as NAND shortages sent prices soaring and pushed its gross margin from 35% to 77% year-over-year.

Micron meets it match

That’s becoming a problem for US rival Micron, which sank 5.83% today. NAND accounts for roughly a quarter of Micron’s revenue, and YMTC’s share of the global NAND market has climbed from 8% to 13% in just a year, putting it roughly neck and neck with Micron.

Throw in the fact that the Trump administration has reportedly decided to allow Apple to purchase memory chips from CXMT and YMTC, and suddenly Micron’s position as a market leader looks to be in jeopardy.

Zoom out: China is increasingly building the entire AI stack at home. Companies like Alibaba are creating demand by pouring billions into AI infrastructure, while CXMT and YMTC are racing to supply the memory chips that infrastructure needs. If those Chinese suppliers eventually win more business abroad, US tech companies could face the same kind of competitive pressure they’ve already seen in industries like EVs and solar—only this time, with much more money at stake.—SY