Key Takeaways:
Alibaba Group Holding Ltd. is aggressively scaling its proprietary chip production and data center fleet to challenge Nvidia Corp.’s dominance, after reporting its artificial intelligence revenue has surged to a $5.3 billion annual run rate while external cloud revenue growth accelerated to 40 percent.
“Alibaba is at a pivotal juncture where our technology investments are beginning to pay off commercially,” Chief Executive Officer Eddie Wu said on the company’s fiscal fourth-quarter earnings call. “We'll maintain our strategic resolve and leverage our full stack AI capabilities to support long term growth.”
The company’s AI-related product revenue achieved triple-digit growth for the 11th consecutive quarter and now accounts for 30 percent of Cloud Intelligence Group’s external revenue, a figure Alibaba expects to exceed 50 percent within a year. Revenue from its model-as-a-service platform is on track to surpass 10 billion yuan in annualized recurring revenue in the June quarter, management said.
The aggressive push into AI pressured near-term profitability, with adjusted EBITDA falling 84 percent, primarily due to strategic investments. With a $38 billion net cash position, Alibaba is betting it can build a vertically integrated AI stack—from its own T-Head chips to its Qwen model—to capture China’s burgeoning AI market and reduce reliance on foreign technology.
A key part of Alibaba’s strategy is securing its own supply of high-performance chips. Wu announced that the company's T-Head semiconductor division has achieved scaled mass production of its proprietary GPU, with more than 60 percent of its compute capacity already serving external customers in sectors like financial services and autonomous driving.
“As the only AI Cloud provider in China capable of delivering self-developed AI chips at scale, we've secured autonomy over our compute supply chain,” Wu said. This provides a structural advantage in an environment of compute scarcity and rising costs, where management noted the price to deploy a new server has more than doubled in the past year. The move intensifies competition with domestic rivals like Huawei Technologies Co. for leadership in China's homegrown AI hardware market.
To power its AI ambitions, Alibaba plans a massive expansion of its infrastructure. Wu said that by 2033, the company will need 10 times the amount of data center infrastructure it had in 2022 to satisfy demand from AI training and inference workloads.
This expansion is the primary reason the company reported a negative free cash flow of 17.3 billion yuan for the quarter. Chief Financial Officer Toby Xu said Alibaba intends to remain “equally resolute” in its investment strategy over the next two years, viewing AI as a critical window of opportunity. Management indicated it is likely to exceed its previously stated 380 billion yuan capital expenditure figure to acquire the necessary compute capacity.
While AI took center stage, Alibaba’s traditional consumption businesses showed signs of improvement. The China E-commerce Group saw revenue rise six percent to 122 billion yuan, while the quick commerce business grew 57 percent. Jiang Fan, CEO of the e-commerce group, said he is confident the quick commerce unit will achieve positive unit economics by the end of fiscal 2027.
Still, the costs associated with this growth and the much larger investments in technology were stark. The 84 percent decline in group adjusted EBITDA to 24 billion yuan was partially offset by growth in customer management services and cloud, but highlighted the immense cost of the company’s strategic pivot to AI.
This article is for informational purposes only and does not constitute investment advice.
