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

Alibaba Group and Tencent Holdings delivered mixed quarterly results as China’s two biggest technology firms intensified their push into artificial intelligence, underscoring the growing pressure on major internet companies to convert soaring AI investments into sustainable revenue growth.

Alibaba’s US-listed shares surged more than 8% after Chief Executive Officer Eddie Wu told analysts the company expects annual recurring revenue from AI-related models and services to triple by the end of the year. Wu said Alibaba was prioritising long-term AI expansion over near-term profitability and signalled the company would spend “far, far” more on AI than previously planned.

The company expects annual recurring revenue from AI products and services to reach 10 billion yuan ($1.5 billion) in June and exceed 30 billion yuan by year-end, according to Wu. Investors appeared encouraged by the rapid growth trajectory despite Alibaba posting its first operating loss since 2021, partly due to heavy spending on AI infrastructure, research and cloud expansion.

Tencent’s US-traded shares climbed nearly 5% after Tencent Holdings reported revenue growth that slowed to its weakest pace in more than a year, though the company still outperformed Alibaba on the back of resilient gaming and advertising operations.

The earnings reports highlighted the diverging strategies emerging among China’s technology giants as they race to establish leadership in AI while facing mounting investor scrutiny over returns from billions of dollars in spending on data centres, computing infrastructure and AI talent.

Alibaba remains one of China’s most aggressive AI investors, having pledged to spend about 380 billion yuan ($56 billion) on AI initiatives over three years. The company has accelerated efforts to monetise its AI ecosystem through cloud services, enterprise software, AI agents and e-commerce integration.

Wu reiterated Alibaba’s ambition to build a full-stack AI ecosystem spanning software, models and hardware. The company has integrated its Qwen AI application with its Taobao shopping platform and launched enterprise-focused AI agent tools under the WuKong brand. Alibaba also raised prices earlier this year for several cloud and AI-computing products, with some services increasing by as much as 34%.

As part of its commercialisation strategy, Alibaba reorganised operations under a new business group called Alibaba Token Hub, consolidating AI research and product teams to streamline development and monetisation efforts.

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The company is also preparing to list its chipmaking arm, T-Head, as investor demand grows for Chinese alternatives to Nvidia amid ongoing geopolitical and supply-chain tensions. T-Head recently secured China Unicom as an external customer.

Alibaba Chief Financial Officer Toby Xu said the company would continue investing heavily in AI and cloud computing to strengthen its competitive position.

Tencent, meanwhile, has moved to strengthen its AI portfolio through upgrades to its Hunyuan foundational model following a restructuring of its AI operations led by former OpenAI researcher Yao Shunyu. Executives said the latest version of Hunyuan had gained traction among developers through the OpenRouter distribution platform.

Unlike some domestic rivals, Tencent has also embraced third-party AI systems including models from DeepSeek to power its chatbot offerings.

The two Chinese internet giants are increasingly facing competition from newer AI-focused firms such as Moonshot AI, MiniMax and Zhipu AI, which have rapidly gained investor attention and rising valuations this year.

Analysts said the latest earnings reflected a broader shift in investor priorities, with markets placing greater emphasis on future AI revenue potential than short-term profitability. Citigroup analysts said Alibaba’s profit pressures reflected a deliberate strategy aimed at capturing long-term opportunities in AI and cloud computing.