Alibaba’s AI Transformation Fuels Impressive Growth

Alibaba Group is undergoing a dramatic strategic pivot, with its cloud computing division emerging as the primary engine for growth. While the company's traditional e-commerce operations face intense competitive pressures, its artificial intelligence initiatives are delivering exceptional financial performance and reshaping investor sentiment.

Recent quarterly results reveal a company in transition. Alibaba's Cloud Intelligence Group reported a remarkable 34% growth rate, substantially exceeding market forecasts. This surge is primarily attributed to soaring demand for computational resources to power AI applications across China.

Company leadership, including CEO Eddie Wu, confirmed that AI-related products have now achieved triple-digit growth for nine consecutive quarters. The acceleration in growth is accompanied by significantly improved profitability, with the division's EBITA climbing 35%—a development particularly encouraging for shareholders.

Strategic Investments Bear Fruit

The technology giant isn't resting on its recent successes. Alibaba has committed approximately 120 billion yuan over the past twelve months to expand its AI and cloud infrastructure capabilities. This substantial investment appears to be yielding positive returns, evidenced by the rapid adoption of Qwen, Alibaba's answer to ChatGPT, which attracted over ten million downloads within its first week of public availability.

Should investors sell immediately? Or is it worth buying Alibaba?

Core Commerce Segment Faces Headwinds

Despite the cloud division's outstanding performance, challenges persist in Alibaba's traditional retail operations. The company's "Instant Retail" business is engaged in a fierce price war against competitors including JD.com and Meituan, resulting in a net profit that nearly halved to approximately 20.6 billion yuan. This decline was largely driven by costly subsidy battles within the competitive delivery service market.

Nevertheless, Alibaba managed to surpass subdued analyst expectations even with this profit contraction. Market participants have responded favorably to the strategic repositioning, with shares advancing more than 72% since the beginning of the year despite recent minor consolidation.

The critical question for investors remains whether management can stabilize margins in the core commerce business while maintaining the current momentum in artificial intelligence. If successful, the renewed excitement around Alibaba's AI capabilities could provide additional upward potential for the equity.