As the years go by, those who have invested in major companies often reflect on pivotal moments, and one such moment has arrived for Alibaba, a giant in the Chinese e-commerce landscapeAfter 25 years of development, Alibaba is at a crucial turning point in its strategic evolution, as artificial intelligence (AI) emerges as the key metric for evaluating its prospects in the capital market.

During a teleconference regarding the third quarter of the fiscal year 2025 held on February 20th, Alibaba’s CEO, Wu Yongming, emphasized the immense demand for infrastructure suited for the AI eraWu announced their commitment to invest heavily in AI infrastructure over the next several years, projecting total investments in cloud computing and AI infrastructure to surpass the combined total of the previous decade.

According to estimates from institutions like Goldman Sachs, this translates to Alibaba's expected capital expenditure (Capex) over the next three years exceeding 360 billion yuan, with some predictions even suggesting a more aggressive projection of 500 billion yuanSuch commitments have given the market confidence that Alibaba is investing substantial resources as it strides confidently towards an AI-driven future.

On the evening of the announcement, Alibaba’s stock price in the U.S. closed at $135.97 per share, a rise of 8.09%. The following day, the Hong Kong shares saw an increase of 14.56%. Reputable financial institutions, including Goldman Sachs, HSBC, JPMorgan Chase, and others, have adjusted their price targets upwards for Alibaba stock, reflecting optimistic market sentiments.

Reports suggest that beyond investment in AI and cloud computing machinery, Alibaba is prioritizing the transformation of its current business to better harness AI capabilitiesThis shift is expected to have increasingly noticeable effects on their performance.

In the third quarter of the fiscal year 2025, Alibaba reported revenues of 280.15 billion yuan, marking an 8% increase year-on-year, which stands as the fastest growth rate in over a year

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Notably, Taotian’s customer management revenue grew by 9%, while Alibaba Cloud's AI-related product revenues have exhibited triple-digit growth for six consecutive quarters.

Historically, every major technological transformation brings with it significant disruptions and unprecedented opportunitiesThe computing revolution sparked by Deepseek has opened the doors for AI applications, and Alibaba is set to seize the moment with ambitious plans.

More than a decade after its inception, Alibaba Cloud is catching up with the AI waveDuring the conference that evening, Wu reiterated that Alibaba will continue to focus on three core areas: domestic and international e-commerce, AI and cloud computing technologies, and internet platform productsThe company plans to intensify investments in AI infrastructure, foundational models, and AI native applications, as well as the AI transformation of its existing businesses.

Investors are particularly eager to learn about Alibaba’s future plans and expectations for its cloud computing businessWu indicated that investment in cloud and AI infrastructure over the next three years is projected to surpass the entirety of the previous decade's expenditureIndustry insiders noted that this level of investment exceeds previous expectations.

According to data from Goldman Sachs and other sources, this could mean Alibaba's capital expenditures for cloud and AI infrastructure over the next three years will exceed 380 billion yuanHowever, some internal sources have indicated that this figure might not be entirely accurate, but they maintain that the need for investment in cloud computing driven by AI will only increase.

Alibaba Cloud's optimism is fueled by the soaring demand for computing powerAs per the financial report, by the end of December 2024, Alibaba Cloud generated revenues of 31.742 billion yuan, marking a year-on-year growth of 13%, nearly doubling the 7% growth rate from the previous quarter

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This surge is attributed to the increase in public cloud revenues stimulated by AI-related products, with these products achieving triple-digit year-on-year growth for six consecutive quarters.

An analyst from a brokerage firm clarified that capital expenditures are investments tied to strategic long-term goals rather than day-to-day operational activitiesFor Alibaba, these investments directly reflect the strong demand for computing powerIn the current quarter, Alibaba’s capital expenditures were 31.8 billion yuan, representing an 80% increase quarter-on-quarterThis suggests that Alibaba is aligning its AI investments with cloud revenue scale, indicating a robust commitment to expansion.

However, the escalating demand for cloud computing means that even this investment may not be sufficientInsider information revealed that Alibaba's clients are persistently exceeding expectations, especially following the Chinese New Year, with inference demand surgingOver 60% to 70% of new client requests have been concentrated in inference scenarios, swiftly expanding the customer base and application scenarios across various industries.

On February 21, HSBC Global Research analysts highlighted that thanks to better-than-expected client management, commission growth, and an expansion in cloud business, Alibaba's core revenue from these segments was remarkably impressiveAnalysts predict that the acceleration in demand for artificial intelligence will further boost Alibaba’s cloud revenue growth.

During the conference, Alibaba also disclosed that its primary AI strategy goal is to achieve Artificial General Intelligence (AGI), striving to continuously push the boundaries of model intelligence.

The company believes that the current AI application scenarios only represent intermediate achievements in the enhancement of AI capabilities, with improving intelligence being the core driver of the present wave of productivity transformation through AI technology

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AGI is defined as the capacity to perform over 80% of human capabilities, and should they achieve AGI, it is predicted that AI-related industries may influence or even substitute around 50% of current GDP structure.

On a practical business level, Alibaba Cloud aims to become one of the largest cloud computing networks that output AI intelligenceThe company claims that tokens, which underpin AI models, will soon see 90% of their generation and output facilitated through cloud computing networks.

As according to Gartner, Alibaba Cloud maintained its leading position in the Infrastructure as a Service (IaaS) market share in the Asia-Pacific region for 2023. With Alibaba Cloud’s extensive network of data centers across the globe, AI intelligence can be delivered to application developers worldwide more swiftly.

Regarding the allocation of this capital, Alibaba has indicated that overall annual capital expenditure will be relatively balanced, although quarterly fluctuations may arise primarily due to supply chain cycles and the construction cycles of Internet Data Centers (IDCs), allowing for flexibility based on actual conditions.

Also, the company plans to significantly ramp up investment in the research and development of AI foundational models to secure technological advancement and an industry-leading status while promoting the development of AI native applications.

Insiders have revealed that Alibaba will soon unveil a deep inference model based on Qwen2.5-MaxAt the end of January, Alibaba launched the flagship version of its AI foundational model, Qwen2.5-Max, which has achieved leading levels in several authoritative benchmark assessments.

Following Alibaba Cloud’s massive investments, market attention will soon turn to Tencent and Huawei's spending in cloud computing, as ByteDance’s Volcano Engine is also making rapid progress in this sector.

Unlike the traditional logic of burning cash prevalent in the internet era, the AI field—burdened with high barriers to entry regarding foundational models, computing power, and even energy consumption—poses unique challenges.

In the face of the impending AI era, it is Alibaba's steadiness in the e-commerce market that allows it to make such substantial investments

Concurrently, the company is actively divesting non-core assets to alleviate burdens, thereby approaching this venture with a lighter load.

Financial reports indicate that Taotian's customer management revenue grew by 9% year-on-year to 100.79 billion yuan, largely driven by growth in online GMV and an increase in the take rate (platform commission rate). The improvement in the take rate is a result of the full-quarter effects of the basic software service fees and improved penetration of “whole station promotion.”

Ali International Digital Business experienced a 32% year-on-year revenue growth to 37.756 billion yuan, propelled by strong cross-border performanceThis sector is currently in an investment phase, as Alibaba management foresees stable growth and considerable profits in B2B business over the next few yearsFurthermore, the profit-and-loss status of cross-border operations is expected to see notable improvement in the coming fiscal years.

Other internet platform businesses within Alibaba are also steadily enhancing operational efficiency; the local lifestyle group's revenue grew by 12% year-on-year, significantly narrowing losses, while the cultural and entertainment group’s revenue rose by 8%, further reducing lossesAdditionally, Alibaba is focusing further on its core business and has signed equity sale agreements with Yintai and Gaoxin Retail during this quarter.

Behind these stable e-commerce results, Alibaba has also implemented strategies to integrate services like WeChat Pay and JD.com logistics, recognizing AI as a significant contributorInsiders at Taotian mentioned that the growth in performance is benefiting from the use of “whole station promotion,” with AI optimizing this marketing tool to effectively target businesses, especially small and medium enterprises.

Recognizing this, Alibaba has begun to accelerate the use and penetration of AI within its operational framework, marking it as a critical area of investment alongside infrastructure and model platforms.

Opportunities for internal AI applications are becoming increasingly apparent; as Wu noted during the conference, the first point is the entry into consumer life

The enhancements to Taobao through AI technology have significantly boosted interaction with consumers and transaction efficiency, with further large potential in various consumer engagement arenas, contributing to increased user time and greater value for Taobao's consumers, potentially extending beyond merely shopping.

In the realm of AI-to-Consumer (ToC), Wu believes that apps like Quark and Tongyi can greatly enhance user search experiences, productivity in creation, and work efficiencyIn the enterprise collaboration scenario represented by To-Business (ToB), DingTalk will leverage AI to reshape internal cooperation and collaboration scenesAdditionally, Amap may transform from simply a navigation tool into a broader life service entry powered by AI.

Insiders revealed that from April of the new fiscal year, Alibaba will have clearer AI implementation strategies, particularly for strategic innovation ventures like Quark, DingTalk, 1688, and XianyuThese areas are termed innovative because they align with user trends and an “AI-driven” strategy.

Exclusive insights indicate that 1688 has recently launched a free AI digital employee, capable of saving an average of four human laborers, reducing business difficulty by a remarkable 80%. Furthermore, a business foundational model based on DeepSeek will be rolled out subsequentlyThis digital employee's underlying base is Tongyi, combined with 1688 data for secondary training.

Earlier this year, Quark revamped its brand slogan to emphasize its role as an AI assistant for 200 million peopleInsiders point out that Quark’s strategic significance within Alibaba is increasing significantly as it shifts from a search product to an all-encompassing AI assistantWith the integration of Tongyi into Alibaba's Intelligent Information Group, numerous product-oriented actions are anticipated.

In early February, AI scientist Xu Zhuhong officially joined Alibaba as Vice President, tasked with overseeing multi-modal foundational models and Agents research and application solutions for AI To C business

Xu has published several papers on “multi-modal pre-training,” effectively proposing pre-training strategies that reduce costsGiven the rarity of talent acquisition announcements for C-end operations, this move signals significant strategic intent.

In terms of e-commerce, insiders indicated that during a recent internal executives meeting, Jiang Fan unequivocally stated that the first priority for Taobao Tmall in 2025 is growth through support for quality brands and merchantsThe meeting signaled that the current goal for AI is to certifiably help merchandisers cut costs.

Additionally, over 80% of operational plans established on the Alibaba Mama platform are now executed via intelligent placementIn 2024, Alibaba Mama will assist merchants in attracting over ten million new users dailyThe introduction of new products is accelerating close to 45%, while annual promotion-driven transactions have exceeded 100 billion year-on-year.

From foundational AI infrastructure to modeling, service platforms, and practical applications, Alibaba is maneuvering through a comprehensive strategy in AIJust as e-commerce historically commanded a significant portion of China's economy, Alibaba's ambition within the AI realm stands to grow further.

The company’s historical trajectory reveals two key moments in its capital market journeyEleven years ago, Jack Ma steered the trillion-dollar e-commerce platform into the NYSE, breaking global IPO records with a $25 billion fundraising round, solidifying investor confidence in Chinese tech stocksAt that time, Alibaba's valuation of $2314 billion eclipsed Amazon, placing it only behind Google.

Five years ago, bolstered by the explosion of the global online economy and rapid growth in cloud computing demand, Alibaba's stock peaked at $319.32, reaching a market capitalization of $864 billion (approximately 6.3 trillion yuan), representing about 34% of the total market cap of American concept stocks from China

Since this peak, Alibaba has experienced a prolonged decline in stock prices.

After an extensive restructuring that dismantled its organizational structure into six parts, with leaders like Cai Chongxin and Wu Yongming taking the helm, Alibaba has shifted strategies over a two-year span to optimize its focus on e-commerce and cloud computing, while deciding to shed non-core operationsIn doing so, it has weathered competition from rivals such as Pinduoduo and ByteDance, while making firm investments in AI.

Now, with a focused investment in the AI sector, the capital market is once again entertained by the prospect of Alibaba reaching a third peak in its valuation.

The head of the TMT group within the Heshui Research Department stated that previously, the market did not assign a suitable valuation to Alibaba CloudTwo key factors contributed: one, Alibaba Cloud's growth had been stalling; and two, its profit margins, especially amid competitive price wars in the domestic cloud market, fell far short of the circa 40% margin enjoyed by Amazon’s AWS.

Today, these two factors are shiftingAfter the introduction of DeepSeek, both the Chinese government and enterprises are rapidly embracing AI, while the profitability driven by AI cloud services such as API calls is found to be substantially higher compared to traditional CPU usageConsequently, there is substantial potential for reevaluating Alibaba Cloud's worth.

As institutional investors sift through their quarterly reports, it becomes evident that firms like Morgan Stanley, Norway’s largest sovereign fund, David Tepper’s Appaloosa, and prime U.S. tech investors such as Primecap Management are increasing their stakes in Alibaba.

Recently, Ryan Cohen, dubbed the “King of Meme Stocks,” has consistently increased his investment in Alibaba, accumulating about $1 billion in sharesAnalysts say his actions reflect a positive outlook on China's long-term economic growth; even though this investment amounts to a small portion of Alibaba's value, it is expected to attract more retail investors.

Currently, Alibaba’s market capitalization stands at 2.63 trillion in Hong Kong and approximately $323.1 billion (around 2.3 trillion yuan) in the U.S

Since 2025, Alibaba’s market capitalization has increased by about $100 billion, yet it still remains a staggering 4 trillion yuan below its peak valuation.

On February 13, JPMorgan issued research indicating that the market significantly undervalues Alibaba Cloud at presentAnalysts noted that at an average valuation multiple of 6.5 for U.SSaaS companies, Alibaba Cloud could be valued at $115 billion, potentially uplifting Alibaba's overall valuation to $320 billion, indicating a 14% upside for its stock price.

The same analysts further indicated that if Alibaba Cloud were assigned the 10.5 times valuation of Microsoft, its valuation could reach $185 billion, raising Alibaba's overall market cap to approximately $391 billionThus, the upward adjustment in valuation driven solely by Alibaba Cloud’s performance could lead to stock price increases of up to 39%.

In contrast to the retail sector, cloud computing typically enjoys higher valuation prospectsFor instance, Amazon currently boasts a market cap of $2.36 trillion (approximately 17 trillion yuan), with half its profits deriving from AWSAccording to forecasts from Morgan Stanley in November 2023, AWS’s stand-alone valuation might hit $1.2 trillion, representing about 80% of Amazon’s market cap, further evidencing the capital market's strong interest in cloud businesses.

While Alibaba Cloud is the largest cloud vendor in China, its planned trillion-level capital expenditures fall several multiples short when measured against international giants.

For Alibaba, AI-driven cloud computing is only beginning, with the pivotal aspect lying in the speed of application development powered by AI, which implicates the broader restructuring of China’s business ecosystem and the intense global competition for AI technological hegemony.

Examining corporate history, it is clear that aligning with technological trends is crucial for navigating business cycles

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