Alibaba Group Holding reported better-than-expected quarterly sales growth, riding on China’s AI development boom.
The company said sales in the September quarter rose 5% to 247.8 billion yuan ($35 billion), compared to the average analyst estimate of 245.2 billion yuan. The company reported that China’s e-commerce revenue increased by 16% in the same period, even though net profit decreased to 20.99 billion yuan. The company’s U.S. shares rose more than 1% in premarket trading.
This series of strong results will lead investors to bet on Alibaba as a leader in artificial intelligence development. The company accelerated the release of its AI models, culminating in the relaunch of its flagship Qwen mobile app. This is an effort to replicate the success of OpenAI’s ChatGPT, which launched quickly this month.
Alibaba joins e-commerce rivals JD.com and PDD Holdings in reporting better-than-expected results. JD acknowledged the Chinese government’s efforts to promote consumption and move more aggressively into food delivery. However, the latter is putting pressure on Alibaba’s profitability as it competes with Jingdong and Meituan for orders.
Alibaba’s report comes against a backdrop of growing doubts about the sustainability of massive investments in AI infrastructure without a clear path to profitability. The spending bubble that Chairman Joe Tsai warned of in March has only widened in the months since, as Amazon.com, Microsoft, Meta Platforms and others pledged to invest hundreds of billions of dollars in new data centers. The company’s stock price has fallen over the past month amid growing concerns about investment returns.
Alibaba did better at selling AI than US hyperscalers
Chinese AI companies have weathered the global decline in AI better than others, in part because their spending plans are still relatively modest. However, Alibaba’s scale of 380 billion yuan over three years sets it apart from its domestic competitors. Tencent Holdings Ltd. spent approximately $1.8 billion on capital expenditures in the most recent quarter.
On the surface, Alibaba’s ambitions also appear more aggressive. The revamped Qwen mobile app gained 10 million users in four days. This is one of the earliest deployments of AI services in China, and Alibaba said it plans to build it into a full-fledged AI agent that can handle tasks such as shopping on Taobao. Qwen plans to gradually incorporate features such as mapping, shopping, travel booking, and education, with the goal of building a broader ecosystem.
Investors have so far been supportive of Alibaba’s AI ambitions. The Hangzhou-based company, whose stock has nearly doubled since the beginning of the year, will have to maintain rapid growth in cloud revenue and fight tough competition from across China’s internet sector, from AI startups like DeepSeek to tech giants like ByteDance.
While U.S. companies such as OpenAI and Alphabet Inc.’s Google remain locked out of China, Kwen must contend with local rivals.
ByteDance’s Doubao chatbot already has more than 172 million monthly active users, according to data from QuestMobile. Tencent is also leveraging WeChat to promote its own Yuanbao, while setting out its own ambitions to build the ubiquitous WeChat into an agent-based AI-enabled service. And there is still no clear path for consumer apps to generate revenue in China, where there is little appetite for users to pay subscription fees.
Alibaba’s cloud division becomes the biggest growth driver
The development of AI and cloud services is widely considered the best path to growth for many of the country’s biggest technology companies, but is hampered by U.S. restrictions on cutting-edge Nvidia chips, and the supply of domestic alternatives is also limited. This has hampered AI development to some extent, but local companies such as Alibaba and Huawei are aiming to develop homegrown accelerators.
In September, Alibaba CEO Eddie Wu laid out plans to build a “full stack” suite for AI development, from advanced models to the infrastructure (such as semiconductors) needed to build AI. The company’s chip unit “T-Head” is making progress in its efforts to compete with Huawei.
Taobao, Alibaba’s main online marketplace for Chinese users, managed to attract more users this year by integrating food delivery features into its app. But fierce competition in the business sector is hurting profit margins across the industry, and authorities last month reiterated their pledge to rein in price competition. Alibaba’s ability to manage costs related to consumer services while investing in cloud operations will be something investors will monitor over the long term.
Written by Luz Ding
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Alibaba prepares major overhaul of flagship AI app similar to ChatGPT
The Chinese e-commerce giant also plans to gradually add agent AI capabilities to support shopping on platforms such as Taobao Marketplace in the coming months.
