Alibaba Group Highlights China’s AI Ascendancy
Alibaba Group Holding is sending a clear message to investors: the U.S. is not the sole contender in the realm of artificial intelligence.
On Wednesday, the company announced a substantial increase in its investments in AI and introduced a new AI model. This development serves as a poignant reminder that China’s burgeoning AI landscape might evolve in a manner distinct from, and potentially more sustainable than, its American counterpart.
CEO Eddie Wu articulated that the organization plans to enhance its investments in AI and cloud infrastructure over the next three years, extending beyond the previously stated 380 billion yuan from February.
This expansion is in response to demand for AI infrastructure that has significantly surpassed the company’s expectations.
The launch of Qwen3-Max, the latest iteration of its large-language model, further fuels enthusiasm, building on the momentum established by DeepSeek’s earlier model this year.
Following the announcement, Alibaba’s American depositary receipts saw a notable uptick, climbing 8.4% to $176.76, as investors perceived this move as indicative of the vast potential within China’s AI sector.
An essential element for investors to consider is the evolution of the Chinese government’s posture towards Alibaba. The company had previously witnessed its market valuation plummet amid a widespread anti-monopoly crackdown on internet platforms.
However, Alibaba’s new AI investment strategies appear to be receiving governmental support, signaling a strategic alignment with Beijing’s objectives, as noted by analysts.
China has ambitious plans to cultivate an “intelligent economy” and an “intelligent society” by 2035. This entails the integration of AI across various sectors of its economy, which could yield a more enduring AI boom compared to the U.S., according to Laila Khawaja, head of technology research at Gavekal.
Beijing envisions AI as the cornerstone of future economic advancement, propelling the next industrial revolution, Khawaja explained.
This initiative suggests that AI development will continue to receive significant governmental backing, encompassing funding, subsidies, and a robust demand for aspirational widespread adoption of AI, with massive inferential requirements.
Another domain where China may possess a competitive advantage is in energy. Khawaja identifies energy as a pivotal constraint on AI progression in the U.S.
Beijing is not only amplifying electricity generation at an unprecedented rate—expanding renewable capabilities rapidly—but is also developing national infrastructure to optimize computational energy efficiency.
Furthermore, extensive support for energy storage—essential for harnessing solar and wind power in AI applications—and microgrids to enhance renewable usage in AI data centers are also underway, she added.
While China excels in producing advanced algorithms requisite for AI, Vivian Lin Thurston, a manager at William Blair’s emerging markets strategy, highlighted current limitations due to restricted access to cutting-edge chips. The Chinese government is actively motivating domestic firms to employ local chips, especially as the U.S. restricts access to superior technology.
“The evolution of AI will manifest differently in the U.S. compared to China, both regarding monetization pathways and practical applications,” she remarked.
Thurston observed that AI adoption in China has lagged behind that in the U.S., particularly as companies navigate a challenging economic landscape characterized by sluggish demand and deflationary pressures.
Current adoption trends have largely focused on sectors prioritized by the government, such as advanced manufacturing to drive industrialization and export enhancement—like electric vehicles and other energy transition-related companies—where AI is utilized for automation.
In contrast, AI applications have witnessed broader acceptance across various sectors in the U.S., including financial services, technology, media, logistics, and retail.
This disparity indicates that China’s initial expenditures may primarily target AI infrastructure rather than immediate applications, suggesting a potentially slower but steeper trajectory for China’s overall AI spending compared to that of the U.S.
A feasible method for investors to engage with China’s AI surge is through hyperscaler firms, such as Alibaba, Tencent Holdings, and Baidu. Among these, Alibaba has become a favored option for investors.
Currently valued at 17 times earnings, Alibaba shares reflect an upward shift from the single-digit valuations seen in 2024 post-government crackdowns and economic downturns. Nevertheless, they remain more economical compared to the 24 times forward earnings that Amazon.com commands.
Analysts also contend that Alibaba’s present earnings fail to fully encapsulate the prospective benefits derived from the momentum generated by the ongoing AI boom in China, nor do they account for the positive outlook surrounding its core e-commerce operations should the economy stabilize further.
Additionally, Alibaba is no longer experiencing governmental scrutiny. Co-founder Jack Ma, who had receded from public view following regulatory actions, has recently resurfaced, reportedly contributing to corporate strategy.
Alibaba is swiftly establishing itself as a dominant player in AI while maintaining a favorable position with the government, a development likely to benefit its stock performance.
Many other stakeholders are positioned to capitalize on the anticipated surge in AI capital expenditures, which are expected to produce significant gains throughout the Chinese AI supply chain.
Other potential beneficiaries encompass manufacturers of high-bandwidth memory, companies engaged in networking equipment, and those providing liquid cooling, repair, and maintenance services.
Citi analyst Louis Tsang, in a recent client note, underscored opportunities stemming from Alibaba’s international data center expansions in Brazil, France, and the Netherlands, as well as increased data-center capacity plans in Mexico, Japan, Korea, Malaysia, and Dubai.
Tsang posits that firms like GDS Holdings and VNET stand to benefit, potentially experiencing accelerated growth in orders and favorable stock re-evaluations as a result of Alibaba’s enhanced investment initiatives, particularly if competitors decide to follow suit. Tsang maintains a Buy rating on both companies.
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