Alibaba’s market value has dropped by more than $20 billion after scrapping plans to list its cloud business

Chinese e-commerce giant alibaba It saw its market capitalization fall by more than $20 billion after it announced that it would no longer spin off and delist its cloud computing business.

The company, which competes with the American tech giant Amazonsaid on Thursday it would not proceed with the spinoff of its cloud intelligence group, citing US export restrictions on advanced chips.

Alibaba said the sanctions “have created uncertainties for the prospects of Cloud Intelligence Group”, which competes with Amazon Web Services, Microsoft Azure and Google Cloud Platform.

“Instead, we will focus on developing a sustainable growth model based on the emerging AI-driven demand for networks and high-end cloud computing services,” Alibaba CEO Joe Tsai said on the company’s investor call Thursday.

Alibaba’s market cap stood at 1.65 trillion Hong Kong dollars ($211.6 billion) at market close in Hong Kong on Thursday. Alibaba’s market cap fell to 1.49 trillion Hong Kong dollars on Friday.

That means a $21.1 billion loss in market cap, according to CNBC calculations with data from FactSet.

Alibaba’s US-listed shares traded nearly 2% lower on Friday, extending losses from Thursday’s tough session, which saw the stock fall 9%.

Investors were hoping for a separate unit for Alibaba’s cloud business that would fetch a higher valuation. In March, analysts estimated Cloud Intelligence Group could be worth between $41 billion and $60 billion, according to Reuters.

However, market commentators warned that the listing could attract scrutiny from both Chinese and foreign regulators given the level of data hosted and managed by the unit.

Morgan Stanley lowered its price target for the stock to $110 from $150. Alibaba shares are currently trading at $76.11 per share in US premarket trade.

In a note Thursday, analysts at the bank said they were removing Alibaba as a top pick and advising a “change to Tencent.”

He cited “missing” expectations at the start of the year regarding several key aspects of Alibaba’s business, including a slower-than-expected macroeconomic recovery, bumpy cloud revenue growth and a “negative surprise” on a planned cloud IPO.

The development highlights how Alibaba, one of China’s biggest tech companies, has become the latest business to be caught up in the tense geopolitical tensions between the US and China.

Alibaba is investing heavily in artificial intelligence as it looks to keep pace with US counterparts such as Microsoft, Alphabet’s Google, Meta, Amazon, Apple and Microsoft-backed firm OpenAI in terms of technology.

The company has long integrated AI into its products and services to generate recommended products for users, analyze data in industrial settings, and develop marketing pieces on its Tmall, Taobao and 1688 e-commerce sites. .

In October, Alibaba introduced a new version of its artificial intelligence model that competes with similar models from US tech giants Microsoft and Amazon.

Called Tongyi Qianwen 2.0, it is a large language model (LLM). An LLM is trained on large amounts of data and forms the basis for generative AI applications such as ChatGPT from OpenAI. Alibaba says the Tongyi Qianwen 2.0, introduced in April, is a “substantial upgrade from its predecessor.”