Quick Summary of the Key Points
This article thoroughly explores the vastly different approaches taken by two of China’s leading internet giants in their recent efforts to invest in AI: Alibaba raised $10.2 billion through a new stock issuance, with no obligation to repay the principal or interest, merely by selling a small portion of its shares; ByteDance, which is not yet listed, went even further. Initially planning to borrow $20 billion, the bank eagerly offered a loan of $29.6 billion on pure credit, with no collateral required, making the total financing nearly three times that of Alibaba. These choices reflect the two companies’ vastly differing assessments of their own valuations, their confidence in generating profits, and their AI strategies. It also indicates that the AI competition among China’s top internet companies has escalated to a new phase involving substantial investments in the tens of billions of yuan. ByteDance is currently the most aggressive player in terms of leveraging resources.
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Detailed Analysis
1. Banks are eager to lend ByteDance $30 billion because the deal is too profitable
Many people wonder why banks would be so confident lending such a large amount without collateral. The reason is ByteDance’s strong profitability. According to Reuters, its annual operating profit is expected to reach $48 billion by 2025, meaning the borrowed funds are less than half of what it will earn in just half a year. It’s like if you owned ten chain milk tea shops below your house, generating a steady monthly profit of 100,000 yuan with no debts, and you went to the bank asking for a loan of 600,000 yuan to expand your business. The bank would not only agree but might even rush to approve it, as even if the new business fails, you could repay the loan within a year using the profits from the existing shops, with no risk for the bank. Previously, in 2024, ByteDance had already borrowed $10.8 billion without collateral. This time, it is essentially converting its highly profitable core business into cash for investment in AI.
2. ByteDance prefers to take on debt rather than issue shares, believing its shares are too valuable
It’s common knowledge that issuing shares doesn’t require repayment, while borrowing incurs interest and requires repayment of the principal. So why choose debt? The main reason is that ByteDance believes its current stock price is too low, and diluting its shares would be too costly. Since ByteDance is not yet listed, its valuation is based on actual transactions: the most conservative estimate is a buyback price for employees in 2025, valued at $33 billion, which has since risen to $48 billion in external transactions, and the latest institutional valuations have reached $55 billion, placing it above Tencent and Alibaba as a top technology company in China. At a valuation of $48 billion, its price-earnings ratio is only 10 times—meaning for every 10 yuan you invest in ByteDance’s shares, you could earn 1 yuan in a year, a faster return than most listed companies. If ByteDance issued $2 billion in new shares, it would dilute the shares of existing shareholders by 4%, which would be a significant loss. In contrast, Alibaba believes its current stock price is high enough, and diluting 3.6% of its shares to obtain $10 billion in debt-free funds is more profitable.
3. The two financing choices reveal the giants’ different risk preferences
The significant difference in their approaches reflects their views on the potential consequences of failing in AI investments:
Alibaba’s total market value is less than $300 billion, so borrowing $30 billion could severely impact the company’s financial health if AI investments don’t yield results. Therefore, it prefers to sell some shares and share the risks with new investors to maintain the company’s stability. ByteDance, on the other hand, has a very stable cash flow from its core business, so taking on a $30 billion loan won’t harm its foundation. By leveraging, it can triple its AI investment scale compared to Alibaba, following the strategy that helped it dominate the short-video market with TikTok. With sufficient and rapid investment, it hopes to reach the critical point where AI products become successful, generating enough profits to cover the loan interest.
4. ByteDance’s approach to AI is unconventional
While the domestic AI community tends to use open-source models to build ecosystems, ByteDance takes a different path. It keeps its core models closed-source, relying on its massive user base and native AI products like DouBao to drive growth. It doesn’t rely on open-source initiatives to attract developers but instead purchases computing power from various suppliers, including Microsoft’s cloud services and GPUs from different manufacturers. It has even ventured into chip development to ensure sufficient computing power. By focusing all available resources on AI, it aims to quickly develop products that users will rely on, potentially leaving its competitors behind.
5. This move has shifted the competition among Chinese internet companies
Previously, the competition focused on e-commerce sales, gaming revenue, and advertising income. Now, it’s about who is willing to invest the most in AI. Alibaba has already invested $380 billion in AI and cloud services over the next three years and plans to exceed this amount. ByteDance is investing at least tens of billions each year, and Tencent is also increasing its AI investments. These three companies are betting their future success on AI. ByteDance’s aggressive leverage strategy indicates its ambition to move from being a traffic giant to a leader in the next generation of technology companies. Whoever develops a widely adopted AI product will shape the future of China’s internet industry.