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E-commerce giant Alibaba Group Holding expects to stay ahead of its Chinese Big Tech peers in artificial intelligence-related capital expenditure, as the firm's AI and cloud computing unit posted its fourth consecutive quarter of double-digit revenue growth.
Alibaba Cloud on Tuesday reported a 34 per cent year-on-year revenue growth to 39.8 billion yuan (US$5.6 billion) in the three months ended September 30, as the Hangzhou-based parent's overall revenue in its financial second quarter reached 247.8 billion yuan. Alibaba owns the South China Morning Post.
The AI unit's level of revenue growth in the September quarter aligned with those of its US peers - Microsoft's Azure and Google Cloud - which posted 40 per cent and 33.5 per cent gains, respectively, according to a research note by Jefferies equity analyst Thomas Chong.
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"High level of growth [for Alibaba Cloud] is expected in the December quarter," Chong said. "After more than 40 companies reported earnings, Jefferies reaffirms its 2026 outlook that AI would continue to shine with multiple catalysts ahead."
In his post-earnings call with analysts on Tuesday, Alibaba CEO Eddie Wu Yongming, who also serves as Alibaba Cloud's chairman, said the strong demand for AI could lead the company to boost investment in AI infrastructure.
Earlier this year, Alibaba committed US$52 billion in capital spending for computing resources and AI infrastructure - China's largest-ever computing project financed by a single private business.
As "the pace at which we can add new servers is insufficient to keep up with the growth in customer orders", the company would not rule out scaling up capital expenditure, Wu said.
Alibaba Cloud reported a 34 per cent year-on-year revenue growth to US$5.6 billion in the September quarter. Photo: SOPA Images/LightRocket via Getty Images alt=Alibaba Cloud reported a 34 per cent year-on-year revenue growth to US$5.6 billion in the September quarter. Photo: SOPA Images/LightRocket via Getty Images>
Alibaba's intention to boost its AI-related capital outlay - beyond what domestic peers such as Tencent Holdings and Baidu were spending - reflects its aim to spearhead China's efforts in the race for global AI leadership.
Alibaba Cloud had already become one of China's major AI developers, as it doubled down on creating advanced open-source systems under its Qwen family of AI models. It recently made a significant foray into the consumer AI market via its multipurpose Qwen chatbot app.
Story continues"The goal of Qwen is to become the most advanced AI app and solve problems in different scenarios," Jefferies' Chong said.
China saw a massive uptick in generative AI adoption to 515 million users in the first half of the year, most of whom preferred domestic AI models, according to a report last month by the state-run China Internet Network Information Centre.
Alibaba had deployed about 120 billion yuan in capital expenditure towards AI and cloud infrastructure over the past 12 months, according to Toby Xu, the group's chief financial officer, at Tuesday's post-earnings call.
Alibaba Cloud's recent spending showed its focus on strengthening its Qwen model family and supporting enterprise adoption of AI services, according to Zhang Yi, a senior analyst at research firm Omdia.
The company is "essentially positioning itself early for future returns rather than acting more aggressively than peers", Zhang said.
Alibaba Cloud's Qwen app looks set to rival the popularity of OpenAI's ChatGPT and Google's Gemini chatbot. Photo: Shutterstock alt=Alibaba Cloud's Qwen app looks set to rival the popularity of OpenAI's ChatGPT and Google's Gemini chatbot. Photo: Shutterstock>
In a research note on Wednesday, HSBC analysts said: "Cloud remains a bright spot." They pointed out that growing storage, computing and database demand would continue to support Alibaba Cloud's growth.
Morgan Stanley analysts said in a research note on Tuesday that Alibaba Cloud's business was forecast to maintain double-digit growth through the next two quarters, as well as the group's next financial year to March.
"We expect recent new AI applications launches, such as Quark AI assistant and Qwen app, to further ramp up adoption," the analysts said.
Strong AI demand for Alibaba Cloud would continue, despite supply chain fluctuations covering advanced chips used for AI development projects, according to the Jefferies report.
At the earnings call, Wu said Alibaba would prioritise its in-house model training and inferencing demand from its generative AI development platform Model Studio over leasing out graphics processing units.
Omdia's Zhang said it was reasonable to expect some near-term pressure on Alibaba's margins amid its capital-intensive AI infrastructure and instant commerce operations. "Over time, the extent of this pressure would depend on how quickly AI-related workloads scale and how effectively infrastructure utilisation improves," Zhang said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.
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