Alibaba aims for major gains from AI even as business growth falls short

Alibaba Group’s US-listed shares jumped over 8% following its quarterly earnings report, where CEO Eddie Wu announced the company expects annual recurring revenue from AI-related models and services to triple by the end of 2024. Wu emphasized Alibaba’s commitment to long-term AI expansion, stating the company would spend significantly more than initially planned, even if it means prioritizing growth over near-term profitability. The company has allocated around 380 billion yuan ($56 billion) for AI initiatives over three years, focusing on cloud services, enterprise software, AI agents, and e-commerce integration. Alibaba has integrated its Qwen AI application into its Taobao shopping platform and launched AI agent tools under the WuKong brand. Earlier this year, the company raised prices for several cloud and AI-computing products by up to 34%. To streamline its AI commercialization efforts, Alibaba reorganized operations under a new business group called Alibaba Token Hub, consolidating AI research and product teams. The company is also preparing to list its chipmaking arm, T-Head, as investor demand grows for Chinese alternatives to Nvidia amid geopolitical and supply-chain tensions. T-Head recently secured China Unicom as an external customer, signaling progress in its commercialization. Chief Financial Officer Toby Xu reiterated Alibaba’s heavy investment plans in AI and cloud computing to strengthen its competitive position. Meanwhile, Tencent Holdings reported slower revenue growth, its weakest in over a year, but still outperformed Alibaba due to resilient gaming and advertising operations. Tencent’s shares climbed nearly 5% after the report. The company has advanced its Hunyuan foundational AI model, with upgrades led by former OpenAI researcher Yao Shunyu. The latest version of Hunyuan has gained traction among developers through the OpenRouter distribution platform, and Tencent has adopted third-party AI systems, including models from DeepSeek, to power its chatbot offerings. Both companies face growing competition from newer AI-focused firms like Moonshot AI, MiniMax, and Zhipu AI, which have attracted significant investor attention and rising valuations this year. Analysts noted that markets now prioritize future AI revenue potential over short-term profitability, reflecting a broader shift in investor priorities. Citigroup analysts described Alibaba’s profit pressures as part of a deliberate strategy to capture long-term opportunities in AI and cloud computing.