Alibaba Group Holdings Ltd. has abruptly abandoned its plans to spin-off its cloud business, citing uncertainties arising from the recent U.S. export restrictions on chips integral to artificial intelligence (AI) applications. The decision underscores the challenges faced by major Chinese tech companies due to the escalating trade tensions between the United States and China, per Reuters.
Last month, the U.S. imposed a ban on the export of chips crucial for AI applications to China, sending shockwaves through the country’s prominent tech firms. Alibaba’s move comes in the wake of Tencent’s announcement on Wednesday, acknowledging that the U.S. export curbs would have a significant impact on its cloud services.
Thursday’s announcement coincided with Alibaba’s release of in-line second-quarter revenue figures. The Chinese e-commerce giant had initially unveiled plans in March to carve out its cloud business as part of the most extensive restructuring in its 24-year history.
In addition to scrapping the cloud business spin-off, Alibaba has also put on hold its plans for an initial public offering (IPO) of its Freshippo groceries business. However, the company emphasized that it would explore external fundraising for its international digital commerce group arm.
Alibaba’s logistics division, Cainiao, had applied for a listing in Hong Kong in September. The news of Alibaba’s decision led to an immediate 8.5% drop in its U.S.-listed shares at the market open. Thomas Hayes, Chairman at hedge fund Great Hill Capital, commented on the market’s reaction, stating, “The market does not like surprises. Investors had hoped to receive separate shares of the cloud business in hopes the segment could achieve a higher multiple in the public markets due to its growth potential.”