How Alibaba came to dominate China's AI scene

Alibaba’s resurgence in China’s AI industry has transformed it into an investor favourite once again. After struggling through years of regulatory crackdowns and a sluggish post-pandemic economy, the e-commerce giant is making a remarkable comeback—this time, as a major player in artificial intelligence.

Its Hong Kong-listed shares have skyrocketed 46 per cent since mid-January, adding nearly $87 billion to its market value. This surge has outpaced China’s other tech giants, including Tencent, Baidu, and JD.com, making Alibaba the best-performing Big Tech stock in China so far in 2025. The rally has been fuelled by optimism over its AI ambitions, with Alibaba doubling down on AI investments and cloud expansion while securing strategic partnerships, including reports of a collaboration with Apple on AI features for China.

From struggles to AI success

Alibaba’s turnaround has been led by two of Jack Ma’s closest allies, Joe Tsai and Eddie Wu, who took the reins in 2023. They started by streamlining operations, refocusing on Alibaba’s core e-commerce business, and rebuilding its cloud division after years of turbulence. But the real game-changer was their decision to go all-in on AI.

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Since ChatGPT sparked a global AI race, Alibaba has invested heavily in China’s most promising AI startups, including Moonshot and Zhipu, while slashing cloud computing prices to lure back customers lost to rivals. Its AI development efforts started paying off in January, when benchmark tests showed its Qwen 2.5 Max model outperformed Meta’s Llama and DeepSeek’s V3 in multiple assessments.

This has cemented Alibaba’s place as a leading AI player, competing not just with Tencent and ByteDance, but also with rising AI startups like Minimax and Zhipu. However, challenges remain, particularly China’s slow AI adoption and the hesitancy of businesses to pay for AI services, which has made monetisation a major concern.

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AI’s role in Alibaba’s market rebound

Despite the excitement, China’s cloud industry is still trailing behind the US. Alibaba’s cloud revenues grew 9.7 per cent in the December quarter, while Baidu’s rose 7.7 per cent—both significantly lower than Amazon’s 19 per cent and Microsoft’s 31 per cent in the same period. This gap raises concerns about whether Alibaba can fully capitalise on AI-driven growth.

That hasn’t stopped investors from betting big. Option trading volumes in Alibaba stock have surged, reaching their highest level in over four months, with bullish contracts far outpacing bearish ones. Hedge funds and long-term investors see AI as a potential game-changer, but many are watching closely to see how Alibaba monetises its AI advancements—especially in its cloud business.

What’s next for Alibaba?

Alibaba’s financial results, due next Thursday, will give investors a clearer picture of its AI strategy and cloud business trajectory. While the stock has seen an impressive rally, some analysts still view it as undervalued compared to US tech giants.

With a forward earnings multiple of 12.2 times, Alibaba’s valuation remains below its five-year average of 14.6 times, making it an attractive bet for investors looking for long-term growth potential. Expanding overseas e-commerce operations could further reduce reliance on China’s domestic market and drive future revenue.

For now, Alibaba’s AI ambitions are giving it a much-needed second wind, helping it shake off the struggles of the past few years. Whether it can sustain this momentum will depend on how effectively it turns its AI breakthroughs into real business gains.