Alibaba’s Plans To Spin Off Its Cloud Division Just Fell From Space

Alibaba’s Plans To Spin Off Its Cloud Division Just Fell From Space
Stéphane Renevier, CFA

3 months ago2 mins

Mentioned in story

What’s going on here?

Alibaba called off its cloud division’s much-awaited spinoff, landing back on Earth with a bump.

What does this mean?

Alibaba pledged to split its business into six parts back in March, so each division could focus better, compete harder, and prosper more. That could’ve been just the tonic after the pandemic and the government’s tech crackdown – but a stiff drink may be needed now instead. Alibaba was forced to cancel the spinoff of the cloud division, which competes against Amazon Web Services and Microsoft Azure. It’s a biggie: the business serves most Chinese technology companies and half of China’s generative AI firms – including Alibaba’s own AI initiatives. Problem is, it needs super-smart chips – the type Nvidia makes – to run, and now that the US has banned exports of the tiny shiny tools to China, the division’s hanging in the balance. Add that to last quarter’s worse-than-expected results, and it’s no wonder that Alibaba’s stock initially slipped 10% after the release.

Alibaba stock

Why should I care?

For markets: China’s seeing stars (and stripes).

Nvidia’s been trying to bypass the chip ban – after all, a sale’s a sale. But for now, Chinese tech firms need to scour the black market or rely on outdated chips. That’s left even the country’s biggest companies falling behind their US rivals, with some calling the curb “an existential challenge” for China’s development. After all, the longer you lag, the harder it is to catch up – especially when this tech moves at the speed of light.

The bigger picture: The elephant in the room.

The presidents of the US and China are sharing words and local delicacies as we speak. So far, they’ve managed to agree on problems like drug crises and military communications, but the export ban hasn’t yet made the agenda. Although given that the US tightened the restrictions on advanced AI chips only a few weeks ago, the issue’s unlikely to be squashed anytime soon.

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