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Kling AI closes $3 billion funding round at $18 billion valuation as Alibaba, Baidu, and Tencent co-invest ahead of Hong Kong IPO

· by Pondero Newsdesk

The short version

Alibaba, Baidu, and Tencent all backed the same AI video company, shaving $2 billion off Kling AI's initial valuation ask. The shift from $20B to $18B signals that investors now demand unit-economics proof, not AI-story pricing.

Kling AI closes $3 billion funding round at $18 billion valuation as Alibaba, Baidu, and Tencent co-invest ahead of Hong Kong IPO

Alibaba, Baidu, and Tencent all co-invested in the same AI video company on July 3, then shaved $2 billion off the initial valuation ask. Kuaishou's AI video unit Kling AI closed a $3 billion funding round at $18 billion post-money, down from the $20 billion target floated in April. When three competing platforms negotiate the price down, it signals that AI video valuations have shifted from story pricing to unit-economics scrutiny.

What happened

Bloomberg reported the round on July 2 with an initial $2 billion figure, citing Alibaba Cloud as anchor. TechNode confirmed Tencent joined July 3, bringing the total toward $3 billion. SCMP reported Kuaishou filed the full investor list directly with Hong Kong Exchanges and Clearing. State-backed co-investors include the Beijing Information Industry Development Investment Fund and the Beijing Artificial Intelligence Industry Investment Fund. The filing confirms Kuaishou expects to begin a Hong Kong listing process within 12 months, making this a pre-IPO financing round.

Kling AI launched in June 2024 as Kuaishou's in-house text-to-video and image-to-video generation platform. Its 3.0 model, released in February 2026, introduced native 4K resolution output at 60fps alongside multi-shot storyboarding and native audio generation. Per Kuaishou's March 2026 earnings call, Kling AI's annualized recurring revenue reached $500 million by March, up from $300 million based on January figures. Q1 2026 revenue exceeded 650 million yuan (approximately $96 million), up more than 300% year-over-year. Roughly 75% of that revenue came from overseas markets, and per investor disclosures the platform had surpassed 100 million global users with more than 600 million videos generated cumulatively.

Why it matters

The $3 billion raise is the largest single financing deal ever recorded in the AI video generation space, and its investor composition tells a specific story. Alibaba, Baidu, and Tencent competing to back the same non-Alibaba AI video company signals that all three see Kling AI's overseas reach as a distribution asset worth co-owning rather than leaving to a single strategic partner. For operators evaluating AI video tools, the investor alignment matters less than the revenue proof: $500 million ARR with 75% coming from outside China makes this a commercially validated platform, not a subsidized domestic showcase.

The valuation adjustment from $20 billion to $18 billion reflects investor discipline on AI assets entering the public-market pathway. Huang Lichong, President of Huisheng International Capital, told China Entrepreneur magazine that the change represents a shift from "AI story pricing" to "deal-feasible pricing," with investors now scrutinizing inference costs, gross margins, user retention, and overseas regulatory risks. That shift has direct relevance to any operator considering Kling AI for production use: a company priced at 50-60x revenue multiples that actually need to justify those multiples via unit economics tends to remain product-investment-heavy rather than extracting margin from API pricing.

There is also a competitive dimension. Kuaishou's Q1 2026 capital expenditure is projected to reach 26 billion yuan (approximately $3.8 billion), most of it directed at AI compute. The spin-off separates that capex burden from Kuaishou's core short-video and e-commerce business, giving Kling AI its own balance sheet to fund model iteration and datacenter buildout. Whether independent infrastructure spending translates into a durable lead will be tested against ByteDance's Seedance 2.5, which released on June 23 with native 30-second single-segment output, and against Alibaba's HappyHorse-1.0, launched by a former Kuaishou VP who left for Alibaba's Taobao and Tmall Group in late 2025.

Context and reactions

Kuaishou CEO Cheng Yixiao said in March that video generation "remains far from mature at both the technical and product levels." That assessment now carries IPO stakes: if ByteDance's Seedance 2.5 closes the capability gap before Kling AI files a prospectus, the 50-60x revenue multiple investors are pricing in today becomes harder to sustain. SCMP noted the round is the largest in the world by an AI video model firm, with Alibaba listed as SCMP's owner in that publication's own disclosure.

The state-backed co-investors, the Beijing Information Industry Development Investment Fund and the Beijing Artificial Intelligence Industry Investment Fund, are not passive observers. Their presence in a pre-IPO round for a company with 75% overseas revenue signals policy interest in backing Chinese AI platforms that generate hard currency offshore, a priority consistent with China's national AI investment strategy.

The valuation trajectory also clarifies what Kuaishou expects from the IPO. At its current short-video and e-commerce pricing of roughly 1.5x price-to-sales, Kuaishou's market cap on the Hong Kong exchange sits well below what Kling AI alone might command on an AI-sector multiple. A successful Kling AI listing would, per analysts cited in investor coverage, allow Kuaishou to participate in a re-rating of its AI assets independent of its legacy business lines.

What to watch next

The immediate milestone is whether Kuaishou files a formal IPO prospectus in Hong Kong before July 2027, the outer edge of the "within 12 months" window disclosed in Thursday's filing. Investors will also watch the next Kling model release for evidence that the $3 billion in fresh capital translates to a capability gap over ByteDance's Seedance line. For AI video operators, the benchmark to track is the Artificial Analysis video generation leaderboard, where HappyHorse-1.0 briefly led Kling 3.0 in early 2026.

Sources