<\/p>\n
China\u2019s twin technology leaders outlined steady progress in AI spheres from agents to cloud services, winning investors over despite lackluster results that reflected the challenges of monetizing artificial intelligence.<\/p>\n
Alibaba Group Holding recorded its first operating loss since the depths of the Covid pandemic in 2021, partly because of the cash it\u2019s funneling into AI initiatives. Chief Executive Officer Eddie Wu said his company\u2019s prioritizing AI growth over the bottom line \u2014 meaning it\u2019s likely to spend \u201cfar, far\u201d more than previously targeted. Annual recurring revenue from models and services should hit 10 billion yuan ($1.5 billion) in June and is on track to triple to 30 billion yuan by the end of the year. The firm\u2019s shares rose about 8% in Hong Kong.<\/p>\n
Wu outlined his sales target after Tencent Holdings reported its slowest pace of revenue growth in over a year. But it outpaced its arch-foe thanks to a resilient advertising and gaming business. The WeChat operator\u2019s stock gained 3.7%.<\/p>\n
China\u2019s biggest tech firms are trying to wring new revenue from AI after billions of dollars of investment in the data centers, research and talent required to drive the technology\u2019s development. Like their US peers, Alibaba and Tencent faced increasing pressure from investors to translate their AI expenditures into lucrative returns \u2014 while at the same time coming under attack from lower-cost rivals such as Moonshot and MiniMax.<\/p>\n
Executives from both companies sought to reassure investors that their endeavors in the field would soon bear fruit.<\/p>\n<\/p>\n
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\u201cWhile AI technology investment has weighed on profit, management noted it is a deliberate strategy to capture the enormous opportunity,\u201d Citigroup analysts wrote, raising their price targets on Alibaba\u2019s US shares. \u201cThe key highlight is the explosive growth in AI, with AI-related cloud revenue growing by triple digits for the 11th straight quarter.\u201d<\/p>\n
Among major Chinese tech firms, Alibaba is one of the biggest spenders with a pledge to shell out some 380 billion yuan ($56 billion) on AI over a three-year span.<\/p>\n
Alibaba this year broadcast its intention to begin monetizing AI \u2014 making money off a plethora of initiatives from its cloud service to AI agents and enterprise software. The Chinese e-commerce pioneer raised prices for its AI and cloud services, pivoted to focus on proprietary models and restructured its teams to better profit from its AI capabilities. Wu has said the company aims to quintuple cloud and AI revenue to $100 billion annually in five years.<\/p>\n
As part of commercialisation efforts, Wu helped set up and lead a new business group \u2014 Alibaba Token Hub \u2014 to streamline operations by bringing most research functions as well as consumer and enterprise products under one umbrella.<\/p>\n<\/p>\n
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On Wednesday, executives stressed that its cloud services business \u2014 one of China\u2019s largest \u2014 was humming. The company now has an AI app integrated with shopping, navigation and payment tools, and offers an agentic tool dubbed WuKong targeting enterprise clients. It\u2019s connected its Qwen AI app to its Taobao platform to drive e-commerce growth and raised its cloud service prices earlier this year, including hiking the cost of AI computing and storage products by as much as 34%.<\/p>\n
Alibaba\u2019s ambition goes beyond AI applications. Wu has said his company is committed to building full-stack AI capabilities, including hardware. Alibaba is now planning to list its chipmaking unit T-Head to tap strong investor interest in Chinese alternatives to Nvidia Corp, after its semiconductor arm won mobile operator China Unicom as an external customer.<\/p>\n
\u201cWe are confident in our business outlook and will continue to invest in AI + Cloud to strengthen our competitive advantages,\u201d Chief Financial Officer Toby Xu said in a statement.<\/p>\n
Tencent has shed roughly $160 billion \u2014 or 23% \u2014 of market value this year, far exceeding the slide by Alibaba. Investors in both Chinese internet icons have recently shifted their focus toward pure-play AI model creators like Zhipu and MiniMax Group, whose valuations have multiplied since their stellar market debuts in January.<\/p>\n
Shenzhen-based Tencent last month revealed a major upgrade to its foundation model, Hunyuan \u2014 the first high-stakes test after it restructured its AI operations under the stewardship of OpenAI hire Yao Shunyu. The open source model is now a leader among peers with similar parameter sizes, and has driven lasting demand on distribution platform OpenRouter, executives said Wednesday. Tencent also leverages DeepSeek to power its main ChatGPT-style chatbot, setting it apart from domestic internet peers.<\/p>\n
What Bloomberg Intelligence Says<\/p>\n
Alibaba\u2019s \u201ccommerce + AI\u201d margin slump to 1.3% in fiscal 4Q, from a historical midteens level, heightens the risk that a profit rebound for this combined group will miss consensus of a 44% jump, even if losses from quick commerce and AIDC narrow. Including the costs of its Qwen-led AI push, which are booked in the All Others segment, Alibaba effectively redeployed more than 90% of its March-quarter China e-commerce profit into Qwen user acquisition and adoption \u2014 a spending run rate that looks set to persist into fiscal 2027.<\/p>\n
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\u2013 Catherine Lim, analyst<\/p>\n
Yet even as they focus on their internal endeavors, both Alibaba and Tencent are grappling with serious external competition in their core businesses.<\/p>\n
Alibaba is engaged in a margin-eroding war of discounts and subsidies with Meituan and JD.com Inc. in food delivery. And Tencent continues to vie with TikTok owner ByteDance for online users, though its advertising arm is thriving.<\/p>\n
\u201cLower-than-expected operating expenses offset softer video-game sales,\u201d Bloomberg Intelligence analyst Robert Lea wrote. \u201cAI targeting boosted full-year ad sales growth to 19.8%, which is remarkable for a firm of this size.\u201d<\/p>\n
\u00a9 2026 Bloomberg<\/p>\n
#Alibaba #Tencent #investors #slow #growth #potential<\/p>\n","protected":false},"excerpt":{"rendered":"
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