Alibaba (NYSE:BABA) shares fell 3.58% and led a sell-off of Chinese tech stocks in Hong Kong after the group's chairman warned about "the beginning" of a potential bubble in data center construction.
The pace of building may outstrip initial demand for AI services, Joe Tsai said at the HSBC Global Investment Summit in Hong Kong on Tuesday, Bloomberg reported.
Big tech firms in China, the US and Europe have rushed to roll out data centres for hyperscalers, ie firms such as Amazon Web Services, Microsoft's Azure, Google's Cloud Platform, Oracle and IBM in the US, and Alibaba, Huawei and Tencent in China, which are operating massive data centers and cloud platforms, helping power apps, websites and artificial intelligence.
Tsai said many data center construction projects are built "on spec", without a specific customer uptake agreement or even a particular customer in mind.
"I start to see the beginning of some kind of bubble," Tsai said.
"I start to get worried when people are building data centers on spec. There are a number of people coming up, funds coming out, to raise billions or millions of capital."
The Hang Seng index in Hong Kong dropped 2.35%, its steepest fall in three weeks, with smartphone manufacturer Xiaomi another of the hardest hit.
Xiaomi, the second-largest manufacturer of smartphones, saw its shares tumble by as much as 6.6% after announcing a fundraising initiative involving the sale of shares at a discount, with the stock having surged threefold from a low in August.
The Hong Kong selling "could be a sign that investors are reassessing their regional allocations ahead of Q2," said market analyst Kathleen Brooks at XTB.
"It may also reflect higher financing costs in China, which spooked investors."
She noted that the Hang Seng has declined for three of the last four sessions even though there were some strong earnings data from the likes of Tencent and BYD.
"Recent trading in Chinese equities has been volatile, as investors grow increasingly cautious about corporate developments following a remarkable rally," said market analyst Patrick Munnelly at Tickmill.
David Morrison at Trade Nation said today's fall "relatively small beer considering the index has risen around 17% since the beginning of 2025".
He added: "Investors have piled into Chinese tech which is valued far more realistically than its US counterparts. And as DeepSeek has shown, China’s tech companies are capable of producing competitive products, and at lower cost apparently."
The emergence of DeepSeek's AI model earlier this year, apparently made without spending as much on NVIDIA chips as other models, has thrown some doubt on the multibillion-dollar investment outlook for the tech industry's AI push, with Alibaba's comments possibly pushing the knife in further.