Alibaba reports early success from AI investments with 12% increase in ad returns

A top executive at Alibaba said Thursday the Chinese technology company is already seeing financial gains from its artificial intelligence investments in online retail operations, addressing widespread doubts about whether corporate AI spending delivers real results.

Kaifu Zhang, a vice president at the company, told journalists that early testing shows the technology is producing measurable improvements. The announcement comes as businesses worldwide face questions about pouring money into AI systems without clear proof of profitability.

Alibaba revealed last month it plans to boost spending on AI and cloud computing infrastructure. The company had already committed in February to invest 380 billion yuan, equivalent to $53 billion, on these technologies over three years.

Zhang handles AI applications for Alibaba’s online shopping platforms. According to CNBC, he explained Thursday how the company deployed various AI tools, including systems that customize search results for individual users and technology that makes virtual clothing fitting tools work better.

Singles Day shopping event approaches

His remarks came one day after Alibaba kicked off early sales for Singles Day, the massive Chinese shopping event similar to Black Friday that happens every year. The main date falls on November 11.

According to Zhang, initial testing produced steady results, with advertising spending efficiency jumping 12%. “It’s very rare to see double-digit changes” in such tests, he told reporters in Mandarin, as translated by CNBC.

Zhang forecast that AI integration would create a “very significant” positive effect on Alibaba’s total merchandise sales during this year’s Singles Day period.

The company’s Chinese online shopping division generates the most revenue among all Alibaba business units. In the quarter ending June 30, this segment grew 10% compared to the same period last year, reaching roughly $19.53 billion.

Chinese shoppers have spent cautiously in recent years, but Singles Day sales still climbed last year. Research company Syntun calculated that combined sales across Alibaba’s Tmall, JD.com and PDD rose 20.1% from the previous year to hit 1.11 trillion yuan.

Despite growth, Chinese e-commerce firms face pressure from price wars that have squeezed profit margins across the industry.

During an earnings call in late August, company leaders described AI and consumer spending as “two major historic opportunities” requiring Alibaba to make investments of “historic scale.”

Chief Financial Officer Toby Xu stated at that time: “Our first priority at this point is making these investments. So for now, we may place relatively less emphasis on profit margins. But that does not mean that we don’t care about margins.”

Stock rally attracts fund managers

Investment fund managers believe Alibaba Group Holding Ltd. could continue a $250 billion stock surge this year that made it China’s most popular artificial intelligence investment.

The company’s American-traded shares more than doubled as investors responded positively to Beijing’s push for technological independence. Despite this rally, Alibaba stock remains more than 65% below its highest point ever, while major American technology stocks recently hit peak values.

Chinese tech stocks have rallied as investors grow more confident in AI investments paying off.

Concerns about China’s economy and fierce market competition led to increased short-selling bets against Alibaba last month. However, the stock price remains relatively affordable, and global funds hold limited positions, suggesting the rally could continue.

The stock trades far below its 2020 peak following years of decline driven by government regulations, internal company changes, and weak Chinese consumer spending. Competition in food delivery that briefly interrupted recent gains also worries investors.

Investors continue questioning how much higher Alibaba’s valuation should go. AI stock valuations globally have sparked fresh concerns that services haven’t yet reached widespread use or generated substantial revenues.

The company recently raised $3.2 billion through convertible bonds to fund continued expansion of cloud computing and AI infrastructure.

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