Alibaba’s $35 Billion AI Bet: Why CEO Eddie Wu Ignores 'Bubble' Fears
- Alibaba's cloud division grew 34%, driving total revenue up, but net income plummeted due to massive spending on AI infrastructure and subsidies.
Alibaba Group Holding Ltd. has delivered a clear message to the market: the future is artificial intelligence, and it is willing to pay a steep price to secure its dominance. The Chinese tech giant reported a better-than-expected 34% growth in its cloud business for the September quarter, a performance that propelled overall revenue up by 5% to 247.8 billion yuan ($35 billion). However, this aggressive expansion came at a cost, with net income diving to 20.99 billion yuan as the company poured billions into consumer subsidies and data center infrastructure to fuel its AI ambitions.
At the heart of this strategy is Qwen, Alibaba's flagship artificial intelligence platform, which has recently been relaunched as a consumer-facing mobile app. The results have been explosive: the revamped Qwen app attracted over 10 million users in just four days, marking one of the fastest rollouts for any Chinese AI service. Unlike American competitors that often focus on stand-alone chatbots, Alibaba is positioning Qwen as a comprehensive "AI agent." The goal is to build a "super app" that can autonomously handle complex tasks—from shopping on Taobao to booking travel and mapping routes—thereby integrating AI directly into the company's vast commercial ecosystem.
This rapid growth is fueled by an eye-watering investment plan. Alibaba has committed to spending 380 billion yuan over the next three years on AI infrastructure, a figure that dwarfs the capital expenditure of many domestic rivals. For context, Tencent Holdings committed roughly $1.8 billion in its most recent quarter. This spending is necessary not only to build data centers but also to fight a brutal price war in the cloud sector. By slashing prices for its AI models, Alibaba aims to capture market share from competitors like DeepSeek and ByteDance, effectively commoditizing the underlying technology to bring users into its fold.
Alibaba’s leadership remains unfazed by growing global skepticism regarding the financial returns of artificial intelligence. While industry titans like Alibaba Chairman Joe Tsai had previously warned of potential "over-investment," CEO Eddie Wu has now firmly dismissed concerns of an "AI bubble." In a statement that contrasts sharply with the cautious tone of Western markets, Wu declared that the company sees no issue with the current hype cycle and plans to continue its "aggressive" investment to meet a backlog of customer orders that currently outstrips their server capacity.
However, the company faces significant headwinds on the hardware front. The United States continues to restrict the export of cutting-edge Nvidia chips to China, forcing Alibaba to rely on domestic alternatives. To bridge this gap, Alibaba’s internal chip unit, T-Head, is racing to develop proprietary semiconductors that can compete with Huawei’s Ascend series and fill the void left by Nvidia. The success of this hardware self-sufficiency drive is critical; without it, the company’s software ambitions could be bottlenecked by a lack of raw computing power
Domestically, the competition is fierce. ByteDance’s Doubao chatbot has already amassed 172 million monthly active users, and Tencent is leveraging its ubiquitous WeChat platform to launch its own "Yuanbao" AI services. Unlike the US market, where subscriptions drive revenue for companies like OpenAI, Chinese consumers have shown little willingness to pay for AI tools. This reality forces Alibaba to monetize Qwen indirectly through its e-commerce and cloud services, making the integration between its AI agents and its shopping platforms vital for long-term profitability.
Ultimately, Alibaba’s latest financial report reveals a company in the midst of a high-stakes transformation. While its legacy e-commerce business remains a stable cash cow—bolstered by recent Beijing stimulus measures—the company’s future valuation clearly hinges on whether it can win the AI arms race. By sacrificing short-term profits for market share and technological sovereignty, Alibaba is betting that its massive infrastructure spend will eventually yield an insurmountable moat around its digital empire.
Interesting Additional Information: A phenomenon dubbed "Qwen Panic" has reportedly begun to spread in Silicon Valley, as Alibaba’s strategy of open-sourcing its powerful Qwen models is undercutting the business models of US firms. By releasing high-quality, state-of-the-art AI models for free (or at extremely low costs), Alibaba is allowing Western developers to build applications without paying steep licensing fees to companies like OpenAI, effectively "hollowing out" the competitive advantage of proprietary US models.