Alibaba’s AI Cloud Surge Challenges Tech Giants’ Dominance

Alibaba’s China Hong Kong-listed shares surged 15% following its recent quarterly earnings report, driven largely by robust performance in its cloud computing and artificial intelligence (AI) divisions. The company’s Cloud Intelligence Group reported a 26% year-on-year increase in revenue, with AI-related product sales maintaining triple-digit growth for eight consecutive quarters [2]. This has positioned Alibaba’s cloud services as a critical pillar for monetizing AI, mirroring the strategies of global tech giants such as Microsoft and Google [2].

Alibaba’s CEO, Eddie Wu, highlighted the strong demand for AI, stating that AI-related product revenue now constitutes a significant share of external customer revenue [2]. The company has continued to expand its AI capabilities, including the development of a new AI chip to support its cloud division and reduce reliance on foreign GPU suppliers [2]. This move aims to enhance performance and reduce costs in Chinese data centers, aligning with broader efforts to control more of the AI stack domestically [1].

Despite the strong cloud performance, Alibaba’s overall financial results showed mixed outcomes. Group revenue for the quarter totaled approximately 247.7 billion yuan, a modest increase that fell slightly below some forecasts [1]. While the cloud segment contributed to improved operating profits, other divisions such as China’s e-commerce and local services were affected by rising operating costs and aggressive price competition in the food delivery market [1]. Ele.me, Alibaba’s food delivery unit, reported margin pressures due to heavy subsidies and fierce competition, a challenge shared by other players in the sector [1].

The company’s financial strategy has shifted toward prioritizing high-value AI and cloud investments while reducing spending on lower-return projects [1]. Management signaled a potential pullback from aggressive subsidy tactics in food delivery and is exploring premium services and asset sales to improve unit economics. Alibaba is also considering an initial public offering (IPO) for its cloud unit, a move that could elevate the segment’s profile and attract independent valuation for its AI assets [1].

Investor reaction has been positive, particularly regarding the cloud and AI growth trajectory, though short-term concerns remain over margin pressures in local services and instant commerce. Analysts are divided on whether the AI and cloud segments can fully offset near-term profit challenges or if continued competition will keep margins depressed for several quarters [1]. However, the share price jump suggests that the market is optimistic about Alibaba’s long-term AI monetization potential.

Alibaba’s advancements in AI and cloud computing have global implications, increasing competition with major cloud providers like Amazon and Microsoft [1]. If the company’s AI tools and in-house chips scale effectively, it could offer a compelling alternative in regions such as Asia, Africa, and the Middle East. However, geopolitical factors and trade restrictions will require Alibaba to balance global ambitions with local supply chain and regulatory constraints.

Source: [1] Alibaba AI Revenue Rises While China Food War Hits Profit (https://meyka.com/blog/alibaba-ai-revenue-rises-while-china-food-war-hits-profit/) [2] Alibaba (BABA) June quarter 2025 earnings report (https://www.cnbc.com/2025/08/29/alibaba-baba-june-quarter-2025-earnings-report.html) [3] Alibaba's cloud-computing business is thriving, and it has a ... (https://www.marketwatch.com/story/alibabas-stock-rises-as-cloud-computing-business-shines-and-with-a-new-ai-chip-in-the-works-6bb26ce5)