Chinese Tech Firms’ Share Sale Spree Sparks Valuation Concerns

Chinese firms are increasingly turning to equity fundraising to bankroll their AI ambitions, fueling investor concerns about earnings dilution and oversupply in an already-underperforming market.

Listed Chinese technology firms have raised over $41 billion through additional share offerings this year, set to be the most since at least 2020, according to data compiled by Bloomberg. Alibaba Group Holding Ltd. led the tally with its $10 billion equity placement last month, the biggest of its kind in Hong Kong’s market, with Z. AI Co., MiniMax Group Inc., and Shanghai Biren Technology Co. among the others.

Alibaba’s surprise deal, quickly pulled off over a weekend, has raised the specter of similar moves by Chinese peers given the heated race for AI supremacy both domestically and with the US. Their preference for tapping the stock market also differs from American firms’ heavier use of debt financing, a contrast that highlights Chinese companies’ focus on healthier balance sheets and the higher costs for them to issue bonds globally.

“This is definitely a trend that should continue,” said Jason Lemire, chief investment officer at Bold Wealth Partners, citing Chinese AI firms’ aggressive capital expenditure plans and earlier rallies that may encourage companies to issue more shares. In comparison, “offshore (debt) financing rates are much more expensive,” he added.

The chipmakers listed on Shanghai’s Nasdaq-style STAR board are prime candidates for equity offerings, while Hong Kong-traded tech giants including Tencent Holdings Ltd., Xiaomi Corp. and Meituan that may need bigger capital outlays are also names to watch, according to Lemire.

The spending boom among Chinese AI-related firms may still have room to run. The country’s cloud providers’ capex equaled 25% of sales as of the second quarter, well below 33% for their US peers, according to Jefferies.

“The dependency on equity for Chinese companies to raise funds is because there’s a well established supply demand playbook that investors can follow,” said Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas SA. “There’s less of those examples on the fixed income side.”

The same pool of Chinese listed tech firms have issued around $15 billion worth of bonds this year, a six-year high but just a fraction of their equity financing, data compiled by Bloomberg show.

In comparison, their US peers have raised $103 billion through follow-on stock sales this year, versus about $380 billion via bond sales.

The relatively limited investor base for Chinese tech firms, which have predominantly sold bonds offshore, as well as the elevated dollar borrowing costs, are among hurdles for them to tap the debt market more aggressively.

“US firms optimize for capital efficiency, often using debt to boost return on equity,” said Jian Shi Cortesi, a fund manager at Gam Investment Management. “Chinese firms tend to be driven by a survival and flexibility mindset, prioritizing balance-sheet strength and cash reserves.”

Valuation Overhang

The equity financing spree among Chinese AI-linked firms has been a key factor behind the underperformance of the country’s two major tech gauges in recent months.

The Hang Seng Tech Index in Hong Kong, which hosts the likes of Alibaba and MiniMax, has lost 20% so far this year. While the onshore STAR 50 gauge is up 18%, it’s 28% off its late-June peak.

Those pale against the Philadelphia Stock Exchange Semiconductor Index’s 68% surge in 2026.

Investors’ worries about earnings dilution resulting from the follow-on share sales were on full display in the aftermath of Alibaba’s deal last month. Its Hong Kong-listed stock has lost over 10% since the fundraising exercise, with by co-founder Jack Ma and senior executives doing little to reverse the selling pressure.

Alibaba’s forward earnings estimates have fallen about 4% from a mid-August high.

Roughly a third of the members of the key tech stock gauges in Hong Kong and mainland China are projected to run negative free cash flow over the next year, according to data compiled by Bloomberg. They include Internet behemoths from Alibaba to Baidu Inc. as well as high-flying AI hardware makers such as Range Intelligent Computing Technology Group Co. and Victory Giant Technology Huizhou Co.

The weak financial profile increases the odds of more follow-on stock sales.

“The market is underpricing dilution risk,” said Xiang Xiaotian, director at Shanghai Chengzhou Investment Management. “Investors should steer clear of companies that face a high risk of future share issuance.”