The U.S. sanctions on semiconductor shipments to China, which are fueled by uncertainty surrounding the company's cloud business, caused Alibaba Group's Hong Kong shares to drop by 10% on Friday.
The Chinese IT giant's market value dropped by almost $20 billion as a result of the decline, which may have been its largest one-day decline in over a year.
It was the first response from the Asian markets following the shocking strategic change that was revealed late on Thursday. The company's US-listed stocks ended the day with a 9% decrease.
"The cancellation of a full spin-off of AliCloud is a negative surprise," said Nomura analyst Shi Jialong in a note.
Tencent Holdings, a Chinese social media and gaming company, expressed similar concerns this week, claiming that the limits would push it to look for domestically made alternatives. Tencent Holdings' bookings follow Alibaba's concerns regarding the U.S. export restraints announced by Washington in October.
Alibaba was once the most valuable stock in Asia. It topped in October 2020 with a valuation of over $830 billion, but as the Chinese economy slowed and the e-commerce company became the focal point of Beijing's crackdown on the technology industry, its value has dropped to less than one-fourth of what it used to be. The most recent announcement from Alibaba highlights the larger challenges that China's tech companies face, as the export restrictions make it more difficult for them to obtain crucial chip supply from American companies.
Analysts had previously projected that the cloud division may be valued between $41 and $60 billion, but they had cautioned that because of the massive amounts of data it handles, Chinese and foreign regulators might monitor its listing.
The Hangzhou-based company postponed its plan to float its Freshippo grocery business when it announced its quarterly earnings on Thursday.
Alibaba Chairman Joseph Tsai announced during a conference call following the company's earnings on Thursday that the company will now prioritise expanding its cloud business and funding its artificial intelligence (AI) drivers.
According to some analysts, Alibaba's AI initiative would benefit from the spin-off's reversal.
"The company believes the chip ban might materially and adversely affect its ability to offer products and services in the longer term. But (it) also points to the increasing importance of retaining the cloud unit given the surging demand for AI computing in China," said US Tiger Research analyst Bo Pei.
Alibaba reported second-quarter revenue of 224.79 billion yuan ($31.01 billion), in line with the 224.32 billion expected by analysts, LSEG data showed.
Alibaba's chief executive, Eddie Wu, gave a detailed overview of the company's future plans during the call, stating that each of its divisions will approach the market independently and that a strategic review would be carried out to determine which businesses are "core" and which are "non-core."
