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Shares of Kingsoft Cloud Holdings, a cloud services provider owned by Xiaomi founder Lei Jun, declined after the company announced plans to issue new shares at a discounted price to raise HKD 2.8 billion (USD 360 million) for artificial intelligence development.
The stock, which experienced a drop of up to 11.3% earlier today on the Hong Kong stock exchange, closed down 2% at HKD 8.91 (USD 1.15) per share. Despite this dip, the stock is still nearly 50% higher than at the start of the year.
The company revealed late yesterday that it would sell 338 million new shares to at least six investors at HKD 8.29 (USD 1.07) per share, representing an 8.8% discount to the closing price on the same day.
Most of the proceeds, about 80%, will be allocated toward bolstering the firm’s AI initiatives, including expanding infrastructure and improving cloud service capabilities. The remaining funds will bolster working capital.
In response to growing demand for AI features, Kingsoft Cloud has been investing heavily in infrastructure upgrades to enhance its computing power and storage capacity, with plans for continued large-scale capital investments in the coming years. The company reported capital expenditure and spending on financial leases for asset use rights totaling around CNY 5 billion (USD 702.3 million) in the first half of this year—an increase of 155% compared to the previous year.
The new share issuance will constitute roughly 7.5% of the company’s total share capital. Post-issuance, the ownership stake of Kingsoft, the main shareholder, will decrease from 35.6% to 32.9%, while Xiaomi’s stake will reduce from 11.1% to 10.3%, according to the announcement.
Since its IPO in 2020 following a spin-off from Kingsoft, the company’s business continues to depend heavily on its two major shareholders. Revenue generated from Kingsoft and Xiaomi amounted to CNY 1.1 billion (USD 154.5 million) in the first half, accounting for 26% of total revenue.
Li Zeming, an investment director at ATTA Capital, pointed out that if Kingsoft Cloud fails to expand its customer base, its growth prospects could be limited by Xiaomi’s product market performance. He also noted that Xiaomi has invested less in AI compared to other tech giants, which could hinder the development of Kingsoft Cloud’s AI business.
In the first half of the year, Kingsoft Cloud recorded a net loss of CNY 771 million (USD 108.3 million), an 8% increase from the same period last year, while revenue grew 18% to CNY 4.3 billion (USD 604 million).
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