Alibaba shares jumped nearly 15% in Hong Kong, marking the largest intraday gain since February.

The surge came after the company reported strong growth in AI-related product revenue and a 26% rise in cloud sales, despite only a 2% increase in overall revenue and a drop in operating income.

Cloud and AI businesses have become a focus for investors as Alibaba competes with JD.com and Meituan, both of which posted weaker results.

The company said investments in food delivery and instant commerce drove 20% user growth on Taobao, with its quick commerce unit reaching scale to improve efficiency.

Alibaba has also updated its open-source video AI model and is investing heavily in AI to keep pace with Baidu and Tencent in China’s fast-moving AI sector.

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🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Chinese tech giants are sacrificing short-term profits for AI market dominance

The price war in China’s e-commerce sector highlights how companies are willing to endure significant losses to secure future positioning in AI-driven markets.

JD.com’s profit halved this quarter while Meituan warned of major losses, triggering a $27 billion selloff across the three companies just last week1.

Meanwhile, Alibaba’s stock surged 15% as investors viewed its AI strategy as a promising path forward, even though the company’s e-commerce margins declined 14% year-over-year due to the pricing battle2.

This trend shows a broader shift in Chinese tech, where companies are prioritizing building AI capabilities that could shape the next decade of competition over immediate profitability.

Alibaba’s commitment of $53 billion over three years to AI infrastructure demonstrates the seriousness of this transition3.

2️⃣ Cloud services are becoming the new profit engine as traditional e-commerce margins compress

Alibaba’s financial results highlight a significant business model transformation happening across Chinese tech companies.

While the company’s overall operating income declined 3%, its cloud division grew 26%, with AI-related products now accounting for 20% of external cloud revenue2.

The cloud unit maintains an 8% operating margin, providing a buffer against the margin compression in traditional e-commerce businesses2.

This shift mirrors Amazon’s evolution, where AWS became the profit center that supported competitive pricing in retail operations.

For Alibaba, this transformation is particularly notable given that the company has been integrating AI across its platforms since 2017, when it launched systems like the “E-commerce Brain” to analyze data from 500 million active users4.

The current AI boom reflects years of foundational work, positioning Alibaba to potentially outpace competitors who lack this depth of AI integration.

Recent Alibaba developments

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