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Alibaba and Tencent Remain Willing to Cut Large Checks

The Chinese tech giants are still comfortable making large strategic investments, both in other companies and their own infrastructures.

Much like some U.S. tech giants, Alibaba  (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report and Tencent  (TCEHY)  are still willing to invest aggressively when they see a strategic rationale.

On Monday, Reuters reported that Alibaba plans to buy a 10% or greater stake in Chinese courier Yunda, which is currently valued at $8.8 billion on the Shanghai exchange. The news service added that Alibaba could obtain a discount of up to 10% relative to Yunda’s stock price “on the last trading day prior to a deal.”

Alibaba, it’s worth noting, already has a majority stake in Chinese logistics giant Cainiao, which works with many third-party shipping firms. It also has a 14.65% stake in Chinese courier STO Express.

Tencent, meanwhile, has taken part in a $1 billion funding round for Chinese online education firm Yuanfudao. Yunafudao, which claims to have 400 million users, says the round values the company at $7.8 billion.

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Also: Tencent has taken part in a $2.4 billion funding round for Chinese online housing platform Beike (Japan’s SoftBank led the round), as well as a $300 million round for Chinese data mining software firm MiningLamp. In addition, the company recently closed a previously-announced deal to buy a 10% stake in big-3 music label Universal Music Group.

There are some parallels here with the strategic deals that U.S. peers remain willing to make. Last week, Microsoft  (MSFT) - Get Microsoft Corporation (MSFT) Report announced it’s buying mobile infrastructure software firm Affirmed Networks in a deal that was later reported by Bloomberg to be worth $1.35 billion. And Facebook  (FB) - Get Facebook, Inc. Class A Report was reported to be in talks to take a multi-billion dollar stake in top Indian mobile carrier Reliance Jio.

From all indications, Alibaba and Tencent also continue to make large investments in their data center infrastructures, as the COVID-19 pandemic drives usage spikes for apps and cloud services that help consumers stuck at home stay entertained or remain productive. Last week, Micron  (MU) - Get Micron Technology, Inc. (MU) Report and Nvidia  (NVDA) - Get NVIDIA Corporation Report indicated that they’ve been seeing strong demand from both U.S. and Chinese cloud giants.

Given their cash balances, Alibaba and Tencent should (like U.S. peers) have little trouble financing their investments, even if the COVID-19 pandemic has a major impact on their near-term cash flows.

At the end of 2019, Alibaba had over $50 billion in cash, while Tencent had over $28 billion. Tencent also estimated that the fair value of its giant portfolio of equity investments was RMB419.8 billion ($59.3 billion).