The Most Obvious AI Company Nobody's Talking About

Ask investors to name the biggest artificial intelligence (AI) companies in the world, and you'll probably hear the same names: Nvidia, Microsoft, Alphabet, or OpenAI.

Few would mention Alibaba (NYSE: BABA). That may be a mistake.

While the market continues to view Alibaba as a Chinese e-commerce company battling slowing consumer spending and fierce competition, the company is quietly building one of the world's largest AI ecosystems. It has developed frontier AI models, operates China's largest cloud platform, and plans to invest massively in AI and cloud infrastructure over the next three years.

Yet most investors still treat it as an e-commerce company. That disconnect could create an opportunity for long-term investors.

Image source: Getty Images.

The market is still looking at yesterday's Alibaba

For most of its history, Alibaba's story was simple. Its fortunes rose and fell with Taobao and Tmall. As China's e-commerce market expanded, Alibaba became one of the country's most valuable companies.

But the e-commerce landscape in China has changed. China's online retail market has matured, and competition from Pinduoduo, JD.com, and Douyin has intensified. The recent quick-commerce war further raises questions about the long-term profitability of this business. It doesn't help that growth has also decelerated significantly, given the size of the business.

Many investors looked at this slowdown and concluded that Alibaba's best years were behind it. Management, however, has been building a very different future.

Qwen, Alibaba's AI strategy

At the center of Alibaba's AI ambitions is Qwen, its family of open-source large language models.

Technically, Qwen already stands alongside many of the world's leading models, delivering competitive performance across coding, math, and general capabilities.

But performance isn't what makes Qwen strategically important. Its open-source model is. Unlike proprietary AI systems that keep developers inside closed ecosystems, Alibaba allows businesses, researchers, and governments to freely build on Qwen.

At first glance, that sounds like an odd business decision. Why spend billions developing cutting-edge AI only to give it away? Because Alibaba isn't trying to monetize the model itself, it's trying to monetize everything built around it. Every company that builds applications using Qwen needs computing power, model hosting, databases, storage, security, development tools, and AI infrastructure. Those services are exactly what Alibaba Cloud provides.

In other words, Qwen isn't simply an AI model. It's Alibaba's customer acquisition engine for the AI era.

The real prize is Alibaba Cloud

This is why Alibaba Cloud may become the company's most valuable business over the next decade. Historically, investors viewed it as China's version of a traditional infrastructure provider. Today, it's evolving into something much bigger. Alibaba is integrating computing infrastructure, foundation models, APIs, development platforms, AI agents, and industry-specific solutions into a single AI-native platform.

This creates a powerful flywheel. Better AI models attract more developers. More developers generate higher cloud usage. Higher cloud usage funds further AI investment. That, in turn, attracts even more developers. It's remarkably similar to the ecosystem strategy that made Amazon Web Services (AWS) indispensable to millions of businesses.

If Alibaba successfully builds the dominant AI platform across China and much of Asia, cloud could become the company's defining business, not e-commerce.

Investors may be valuing the wrong business

Today, discussions about Alibaba almost always begin with Chinese consumer spending. That's understandable. Domestic commerce still generates most of the company's revenue.

But investors should increasingly ask a different question. What if Alibaba's future is determined less by shopping and more by AI infrastructure? Cloud businesses typically deserve higher valuation multiples because they generate recurring revenue, high switching costs, and expanding margins as they scale.

Besides, this business has been firing on all cylinders of late. For perspective, Alibaba Cloud revenue grew by 34% in the latest fiscal year ended March 31. Particularly, AI-related product revenue delivered triple-digit growth for the 11th consecutive quarter.

If Alibaba's AI strategy succeeds, investors may eventually stop valuing it as a mature retailer and start valuing it as an AI platform. That may lead to a higher overall valuation multiple.

What does it mean for investors?

Alibaba still faces real challenges. Domestic commerce needs to stabilize, AI investments are expensive, and competition remains fierce.

But the market may be overlooking something far more important. Alibaba isn't simply adding AI features to its existing businesses. It's rebuilding the company around AI.

If management executes well, investors may one day realize they weren't buying a slow-growing e-commerce company at all. They were buying one of the world's largest AI infrastructure platforms -- before the rest of the market recognized it.

Lawrence Nga has positions in Alibaba Group and PDD Holdings. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool recommends Alibaba Group and JD.com. The Motley Fool has a disclosure policy.