Chinese technology giant Alibaba Group has reported impressive growth in its cloud computing division, driven by the ongoing artificial intelligence revolution, even as the company faces profitability challenges in its core e-commerce operations.
Cloud Business Shows Strong Momentum
Alibaba's cloud revenue witnessed a 34% year-on-year increase during the July-September quarter, accelerating from the 26% growth recorded in the previous April-June period. This remarkable performance demonstrates the company's successful pivot toward cloud computing and AI technologies, areas where it has committed substantial investment.
CEO Eddie Wu emphasized that the company's significant investments in artificial intelligence have been instrumental in driving this revenue growth. The upgraded AI chatbot Qwen, Alibaba's answer to OpenAI's ChatGPT, recorded an impressive 10 million downloads within just one week of its public launch, indicating strong market reception.
Mixed Financial Performance
While the cloud segment showed robust growth, Alibaba's overall financial picture presented a mixed bag. The company reported total revenue of 247.8 billion yuan ($35 billion) for the quarter, representing a modest 5% year-on-year increase. More concerning was the 52% drop in profit compared to the same period last year.
The profitability decline stems primarily from intense competition in China's e-commerce landscape, where fierce price wars across various segments, including food delivery, have eroded short-term margins. This challenge isn't unique to Alibaba, as evidenced by rival JD.com reporting a 55% net profit drop during the same quarter.
Ambitious AI Investment Plans
Alibaba has positioned artificial intelligence as central to its future growth strategy. Earlier this year, the company pledged to invest at least 380 billion yuan ($53 billion) over three years to advance its cloud computing and AI infrastructure. However, in Tuesday's announcement, the company indicated it will likely exceed this planned investment to meet surging demand for AI services.
The company expressed strong confidence in future AI demand growth, stating that demand for artificial intelligence is accelerating rapidly. This optimism has translated into positive market sentiment, with Alibaba's Hong Kong shares gaining 2% on Tuesday and New York-listed shares rising 2.4% before the opening bell. Year-to-date, the company's shares have surged more than 90%, largely fueled by investor enthusiasm around its AI progress.
Chinese Tech Landscape in Focus
The broader Chinese technology sector shows varying performance in the AI race. Tencent, which competes with Alibaba in artificial intelligence, reported a solid 15% year-on-year revenue increase for the same quarter. Meanwhile, Baidu, another key player in AI development, experienced a 7% revenue decline during the period.
Chinese companies have been making significant strides in artificial intelligence, with tech startup DeepSeek challenging the dominance of US rivals in the sector. However, concerns about a potential AI bubble have been growing among investors and analysts, though strong recent earnings from chipmaker Nvidia have somewhat alleviated these worries.
Alibaba's journey from its e-commerce origins to its current focus on cloud and AI technologies reflects the broader transformation occurring across China's technology industry as companies position themselves for the next wave of digital innovation.
