Alibaba’s Cloud and AI Investment in the Next Three Years Expected to Outpace Last Decade

On February 20, Alibaba released its Q3 financial report for the fiscal year 2025, revealing a robust performance. The company’s revenue reached 280.15 billion yuan, marking an 8% year-on-year increase, the fastest growth rate seen in a year. Its net profit was particularly impressive, soaring by 333% year-on-year to 46.434 billion yuan. This robust performance led to a surge of over 10% in Alibaba‘s pre-market US stocks.

Drilling down into specific business sectors, the Taobao Tmall Group, during the reporting period, generated revenue of 1360.91 billion yuan, a 5% increase compared to the previous year. In a conference call, Alibaba‘s executives highlighted the e-commerce sector’s strong performance, with new buyer acquisition and order volumes showing significant year-on-year growth.

Alibaba‘s newly appointed CEO for the e-commerce business group, Jiang Fan, emphasized during the Q3 earnings call that the company’s long-term goals for domestic e-commerce revolve around maintaining a stable market share, improving user experience, enhancing merchant operating efficiency, and fostering a better business environment.

Jiang Fan also touched upon the future of B2B and B2C businesses. He projected that the B2B sector would yield considerable profits in the coming years. He commended the B2C sector for its past optimizations in cross-border operations, which led to a significant improvement in the profit and loss situation. He mentioned that the company is actively seeking partnerships with local platforms in various countries.

Alibaba International Digital Commerce Group also showed a strong performance during the reporting period, with its revenue growing by 32% year-on-year to 37.756 billion yuan. This growth was primarily driven by the robust performance of cross-border operations. While Jiang Fan acknowledged that it’s uncertain whether international business will be more profitable than domestic business, he affirmed that the profit path of international business is becoming increasingly clear.

Alibaba‘s cloud business sector, a focal point of interest, performed well. Alibaba‘s CEO Eddie Wu reported that Alibaba Cloud’s revenue returned to a 13% double-digit growth, and AI-related products maintained a triple-digit growth for six consecutive quarters.

Eddie Wu discussed the impact of DeepSeek, noting that the gap in capabilities between various large models, including those that are open-source and closed-source, is gradually narrowing. This trend, he suggested, is beneficial for cloud computing companies since most open-source models rely on cloud computing networks. He likened the role of AI in the future to a commodity, and the cloud computing network to the current power grid.

DeepSeek has spurred the growth in inference demand, a trend Alibaba Cloud has evidently noticed. Eddie Wu revealed that post the Spring Festival, there was a significant surge in inference demand, with 60% of new customer demand being used for inference. Alibaba plans to capitalize on this trend by releasing a deep inference model based on Qwen2.5-MAX soon. This follows the company’s release of the AI basic large model Qwen2 at the end of January.

Looking forward, Eddie Wu outlined Alibaba‘s focus on three key business areas: domestic and international e-commerce, AI-enhanced cloud computing technology business, and internet platform products. The company plans to ramp up its investment in AI infrastructure, basic model platforms, AI native applications, and the AI transformation of existing businesses as part of its core AI strategy.

Eddie Wu asserted that the pursuit of Artificial General Intelligence (AGI) is a primary goal in Alibaba‘s AI strategy. He stressed the importance of pushing the boundaries of model intelligence, arguing that the realization of AGI could have far-reaching implications beyond any current application scenario. He suggested that AI-related industries could become the world’s largest industries in the future, replacing 50% of the current GDP composition.

Responding to analysts’ questions about the impact of large capital investments on the company’s profit margin, Eddie Wu acknowledged that while the expansion of the customer base and application industry driven by large models could increase the profit margin to some extent, the increased investment in AI over the next three years could also affect the profit margin. He noted that the profit margins in the Chinese and global cloud markets differ, indicating the need for a nuanced approach.

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