Following over a month of speculation about Kuaishou-W (ASX: 01024) spinning off its Kling AI for a separate listing, the company's formal capitalisation plan has now been unveiled.

On the evening of July 2, Kuaishou announced the independent financing and restructuring plan for Kling AI. According to the announcement, Kuaishou will integrate Kling AI's related assets and operations into Beijing Kling and introduce external investors.

The pre-money valuation for this funding round is $15 billion, with a maximum total financing amount of $3 billion, representing a newly issued equity stake of no more than 16.67%. If the maximum financing is achieved, Kling AI's post-money valuation would be approximately $18 billion. While this valuation falls short of the initially rumoured $20 billion target, based on Kuaishou's closing market capitalisation on July 2, the post-money valuation is equivalent to about 76% of Kuaishou's total market value.

Upon completion of the financing, Kuaishou's stake in Beijing Kling will be diluted from 100% to approximately 68.33%, allowing it to retain a controlling position. On July 3, Kuaishou's stock price opened higher, at one point surging more than 6%.

Investment Consortium Composition

The investor lineup for Kling AI's funding round is one of the highest-profile in China's AI sector in recent years. A total of 36 investors participated, with the notable inclusion of Tencent, Alibaba, and Baidu.

As per the announcement, Tencent plans to invest approximately RMB 1.363 billion through two entities, securing about a 1.12% stake. Alibaba's cloud computing unit, Aliyun, plans to invest about RMB 1.363 billion for a roughly 1.11% stake. Baidu intends to invest around RMB 341 million for an approximate 0.28% stake.

Beyond the participation of China's three internet giants, the investor list also features industrial and state-backed capital such as Shanghai Guofang, China Internet Investment Fund, Beijing Artificial Intelligence Industry Investment Fund, and CITIC Securities Investment, alongside well-known institutions like CPE Yuanfeng and Qiming Venture Partners.

This signifies that Kling AI's value has gained recognition from China's top-tier capital.

Currently, the initial group of investors has agreed to inject $2.028 billion into Kling AI. On the same day, an additional 15 investors signed participation agreements, committing a further $766 million. The confirmed financing amount so far is approximately $2.795 billion, nearing the $3 billion upper limit.

Strategic Motivations of Major Investors

The simultaneous investment by internet giants in a single AI company reflects a shift in the competitive landscape.

For Tencent, which is already a significant shareholder in Kuaishou and is advancing its own Hunyuan large model and AI application strategy, investing in Kling allows it to continue sharing in the growth of the AI video segment.

Alibaba's objective is more direct. Over the past year, Alibaba has consistently strengthened its cloud computing and AI infrastructure, aiming to secure more AI application-layer clients through its cloud services. As one of China's fastest-commercialising video generation platforms, Kling represents an important potential computing power client for Alibaba Cloud.

While Baidu possesses its ERNIE large model, its footprint in the AI video generation field is relatively limited. Investing in Kling enables Baidu to share in the industry's growth while further enhancing its AI ecosystem.

Furthermore, the concurrent entry of numerous state-backed funds indicates that local governments and industrial capital are viewing AI video generation as a key investment direction for the next wave of artificial intelligence.

Listing Timeline and Strategic Commitments

Kuaishou has also provided these investors with a timeline commitment for Kling AI's spin-off and listing. According to the disclosed arrangement, within nine months after the latest payment date of this financing round, Kuaishou will progressively inject the Kling AI-related models, algorithms, R&D teams, overseas operations, and operational assets currently scattered within the group into Beijing Kling, making it the sole operating entity for the entire Kling AI business.

Simultaneously, businesses unrelated to Kling will be divested back to other entities within the Kuaishou group. If Kling AI fails to complete an initial public offering by October 2031, investors have the right to request a buyback at the original investment amount plus 8% simple annual interest.

Additionally, Kuaishou has proposed that, starting from the completion of the restructuring, for at least the next five years, aside from Beijing Kling, the Kuaishou group will not directly or indirectly control any other entity primarily engaged in video generation model business. In other words, Kling will become Kuaishou's exclusive video generation large model platform.

Rationale Behind the Spin-Off

For Kuaishou, the primary significance of spinning off Kling lies in unlocking the value of its AI business. Previously, as an internal operation within the Kuaishou group, it was difficult for the capital market to assign Kling an independent valuation. In the future, with independent financing and operations, its growth potential can be more clearly demonstrated, attracting investors focused on the AI field and paving the way for a subsequent IPO.

Video generation large models are widely acknowledged as capital-intensive endeavors, also testing the endurance of investors' capital. Faced with high computing power costs and competitors like ByteDance, Alibaba, and Tencent possessing stronger financial resources, Kling AI's spin-off from Kuaishou provides a better opportunity to secure more funding support to achieve victory.

Unlike the focus on competing over large model capabilities in previous years, the commercial return on investment for AI products has now become a critically important consideration. In this regard, Kling AI has progressed relatively swiftly in commercialisation.

Financial Projections and Future Challenges

The announcement disclosed that, assuming the restructuring is completed, Beijing Kling's revenue for 2025 is projected to be approximately RMB 1.1 billion. As of March 2026, Kling AI's annualised revenue run rate has already reached about $500 million.

Kuaishou Technology's founder and CEO, Cheng Yixiao, previously indicated that based on the current growth momentum and commercialisation progress, the company maintains strong confidence that Kling AI can achieve a year-on-year revenue growth of over 100% in 2026.

However, for Kling AI, independence is merely the first step. In the coming years, it must not only prove its ability to sustain globally leading video generation capabilities but, more importantly, demonstrate that it is an independent AI company capable of navigating AI technology cycles and possessing long-term profitability.