Alibaba – the Poster child of the Chinese AI Revolution

TradingKey - In the beginning of the year, Alibaba ADR at the New York Stock Exchange was traded at $84.95. AS of September 25^th, the price is already $176.44, or more than double – a remarkable rally that doubled the price within less than ten months. This looks even more impressive considering the stock has been performing terribly since the failed IPO of Ant Group in November 2020.

The main driving force behind the price surge is the all-in bet on AI, which we can see in the recent company developments, each of them pushing the price of the e-commerce giant higher and higher:

Ramp up AI investments – Alibaba management is expected to spend 380 billion RMB or $53bn in capex for the next 3 years, or 127 billion RMB per year on average. This is a significant increase from the previous two financial years where that number was 86 billion and 32 billion RMB respectively.

Qwen series as a leading LML – Alibaba created a series of large language models that are among the leading ones in China, along with DeepSeek. The Qwen series can be used for processing text, images, audio and video. Qwen also has an advanced coding tool (Qwen3-Coder).

Expansion of Cloud Business – In fact, Alibaba is among the largest cloud players globally if we exclude the top three incumbents (AWS, Azure and Google Cloud). For the last fiscal year, Alibaba Cloud generated 106.3 billion RMB of revenue, or $16.27bn. This large scale is a result of several year-long efforts by the management to expand the business. Why is Cloud important?  In order to run, deploy and scale AI tools, a company should have a very strong cloud basis, and this is what BABA is doing. This is also what we see with Amazon, Google and Microsoft. Cloud is needed to host and train AI models, to power various AI services and to provide a system for developers to create more AI products.

Cooperation with Nvidia – The recently-announced cooperation with the GPU giant further solidifies the role of Baba in the Chinese AI scene. The agreement is focused primarily on the software side, combining BABA’s AI models with Nvidia’s software tools which can be used in powering robots, self-driving cards and other smart city systems.

Smart Glasses – Quark AI Glasses (to be launched end of the year) can be used for navigation, payments – fitting the overall system of Alibaba

Development of homegrown AI Chip – Apart from the software side, BABA AI ambitions spread to the hardware side, as well. With proprietary AI chips BABA is: 1) Reducing its own reliance on foreign chip suppliers amid the complex geopolitical situation; 2) Addressing a huge market pain point in China – not enough chips to feed the Chinese AI machine; 3) Create an integrated AI ecosystem on both software and hardware level, which will lead to increasing the overall competitive moat and achieving cost efficiencies.

Strategic acquisitions - Over $3.3B invested in AI startups since 2022 (Sept 2025), including telecom deals for AI chips, yielding "tangible returns."

What makes BABA ready to be an AI leader in China?

Alibaba has a proven track record of technological advancements within the country. After all, they are the ones that introduced e-commerce and fintech to the second-largest economy in the world.  

Right now, what Alibaba is doing is to follow a script, already written by the large US AI Scalers:

BABA has created an ecosystem, encompassing commerce, fintech, logistics and cloud, creating a strong data moat, essential for AI development, just like what we see in the US with Meta, Amazon and Alphabet.

Furthermore, Alibaba has a mature cash-generating business (e-commerce) that contributes to the solid balance sheet of the firm and can help with spending hefty amounts on AI-related capex and AI-startup acquisitions. This model of cash cow fueling AI investments is also seen in Meta, Amazon and Alphabet with their respective large-scale advertising and e-commerce businesses.

Basically, the formula is “Cash cow business to support AI investments + Rich amount of data + Solid Cloud basis to run AI on” – this is what we see in the top tech firms in America, and this is what we see in Alibaba.

Not just Alibaba

The AI appears to drive the overall sentiment in Chinese stocks. NASDAQ Golden Dragon China Index has been up almost 30% year-to-date, while the Hang Seng Index is chasing 40% year-to-date.  

However, not all Chinese tech stocks are created equal. On one side we see companies like Alibaba and Baidu leading the AI narrative (BIDU being up 61% year-to-date). But on the other hand, we do not see a rally in other peers like JD.com (JD) (stock price being flat year-to-date) or Meituan (3690.HK) being down over 30% year-to-date.

The main reason behind the divergence is the fact that the JD and Meituan are not pivoting as actively into AI, as BABA and Baidu do.   

Does the rally have legs?

With the rally happening in such a short period of time, investors may ask whether this is sustainable.

During the last 4-5 years the Chinese stock market went down a lot, while the US market was flying high driven by AI. This has created a huge gap between the valuations of the Chinese and US tech giants, and despite the recent rally, Chinese tech is still traded at a huge discount compared to the US peers.

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