Alibaba is one of the hottest AI stocks in the market in 2025, with shares up more than 60% year-to-date. The surge in price is due to Q3 results showing Cloud revenue accelerated with AI revenue up triple-digits for a sixth quarter in a row. Notably, the triple digit growth is on much lower revenue than what United States Big Tech companies are reporting, with leader Microsoft at 13X higher AI revenue. AI is also not meaningfully contributing to revenue nor earnings despite six consecutive quarters of triple digit growth.
Despite the advancements that Alibaba is making in AI and tens of billions it is committing to invest in AI infrastructure, AI remains but a small portion of Cloud revenue, far below the scale of US-based peers. An ultra-competitive Chinese AI market engaging in a pricing war likely is hindering the country’s AI growth potential, as Alibaba is touting tens of thousands of users and millions of downloads with small dollar growth to show for it. I break this down and more below.
Alibaba has Made Visible AI Advancements
Alibaba remains committed to its dual-prong strategy of e-commerce and AI + cloud. The company has recently highlighted multiple advancements on the AI front, with a handful of its models showing “industry-leading” performance. Shares rose again on Tuesday as Alibaba struck a partnership with Manus AI to roll out a Chinese version of Manus’ rapidly popular AI agent.
China’s AI market is rapidly heating up with fierce competition from Alibaba, DeepSeek, Baidu, Tencent and Bytedance, among others. Alibaba is aiming to take a leading position in the AI market and announced recently that its Qwen2.5-Max mixture-of-experts model outperforms DeepSeek’s V3, Meta’s Llama 3.1 and OpenAI’s GPT-4o. In Q3’s earnings call, Alibaba teased the release of a new deep reasoning model built on Qwen 2.5 Max.
Last week, Alibaba announced a new 32 billion parameter reasoning model, QwQ-32B, that it says outperforms DeepSeek’s R1 reasoning model, with 1/20th the parameters. QwQ-32B is the latest iteration of QwQ, which was first launched in November 2024 and “designed to enhance logical reasoning and planning by reviewing and refining its own responses during inference,” which a report from VentureBeat says allowed it to outperform OpenAI’s o1 on math benchmarks AIME and MATH, and scientific reasoning tasks.
Alibaba is committed to expanding access to its AI models and tools, with its Qwen-2.5 series of models available via APIs as well as its genAI development platform Model Studio. Developers also can access Alibaba’s family of multimodal models – its vision understanding model Qwen-VL, its visual generation model Wanx2.1, its audio language model Qwen-Audio, and its coding assistance model Qwen-2.5coder.
In Q3’s earnings call, Alibaba’s management highlighted that this approach is paying off, with more than 90,000 Qwen-based derivative models developed globally at the end of January, which made Qwen “the most popular among developers across the major model families.” Management added that more than 290,000 companies and developers accessed Qwen APIs through Alibaba Cloud’s Bailian platform.
Alibaba Outlines Significant Capex Outlay to Support AI
To support its growth in AI and become a competitive global player, Alibaba outlined a plan to “aggressively invest in AI infrastructure,” with planned capex over the next three years exceeding what it has spent over the last decade. Management’s plan calls for spending of 380 billion yuan, or ~$52.4 billion, over the next three years predominantly for AI.
Management first discussed increasing capex in the June 2024 quarter, when expenditures nearly doubled YoY to ~12 billion yuan, or $1.6 billion. Management noted in the June quarter that confidence in this level of investment was driven by strong demand, and expected to stay around this level for the next few quarters.
However, capex quickly accelerated — in the September 2024 quarter, capex rose more than 310% YoY to 16.9 billion yuan, or $2.4 billion, and in the December 2024 quarter, capex rose 330% YoY to 31.4 billion yuan, or $4.3 billion. For the nine months of this fiscal year, capex totaled 60.3 billion yuan, or $8.3 billion, rising more than 246% YoY.
Capex Plans Well Below US Big Tech
This 30 billion yuan/quarter rate is a bare minimum of what’s needed to come close to management’s spending targets, signaling heightened capex will continue for the foreseeable future. However, at $52.4 billion over the next three years, Alibaba is spending only a fraction of what US Big Tech firms are spending, which could impact its competitive positioning.
For 2025, Amazon, Microsoft, Meta and Alphabet outlined plans for approximately $320 billion in capex, predominantly for AI, which is 6x more than what Alibaba is spending. Of the four, Meta has earmarked the least towards capex, at $60-65 billion, but even at the low end, Meta’s one-year spending is more than 15% higher than Alibaba’s 3-year plan.
In 2024 and 2025, Big Tech is on track to spend more than $550 billion in capex, or more than 10x higher than Alibaba’s plan in just two years as opposed to three. So while Alibaba’s AI spending commitment looks high compared to its historical investments, it’s spending just a mere fraction of what Big Tech is. The US is not likely to back down when it comes to AI dominance, which we covered in the article “DeepSeek Creates Buying Opportunity for Nvidia Stock.”
Alibaba Remaining Competitive on AI Pricing
China’s AI market is engaged in much fiercer competition than in the US, and this is evident within the pricing structures of AI models. Alibaba and rivals are pricing models at mere fractions of the cost of US-based competitors, in an effort to win over customers from each other and remain ahead in the broader global AI race.
China’s AI market has been in a pricing war since early 2024 – Alibaba had cut prices by up to 97% in May 2024. ByteDance further intensified the price war in December 2024, when it slashed prices for its new Doubao model with vision understanding capabilities to $0.00041 per 1,000 tokens, 85% lower than the industry average. Alibaba mirrored this move within two weeks, matching Doubao’s $0.00041 price for its Qwen-VL Max model.
Alibaba’s Qwen2.5 Max is priced at $0.0016 per 1,000 input tokens and $0.0064 per 1,000 output tokens, while its Qwen Plus is offered at $0.0004 per 1,000 input tokens and $0.0012 per 1,000 output tokens. Qwen Turbo is priced at $0.00005 per 1,000 input tokens and $0.0002 per 1,000 output tokens.
For comparison, ByteDance’s Doubao 1.5 Pro is priced at $0.00011 per 1,000 input tokens and $0.00028 per 1,000 output tokens. DeepSeek’s V3 model is priced $0.00014 per 1,000 input tokens and $0.00029 per 1,000 output tokens, while its R1 models is priced higher at $0.00057 per 1,000 input tokens and $0.00227 per 1,000 output tokens. Baidu recently announced that it is aiming to make Ernie free for all users by the start of April this year.
This pricing structure is allowing Alibaba to remain quite competitive in the Chinese AI market and more so on the global market, as China’s models are significantly cheaper than OpenAI, Anthropic and others, with Meta and Mistral two of the lower-cost competitors.
OpenAI’s GPT 4.5 is currently one of the most expensive models available, at $0.075 per 1,000 input tokens and $0.15 per 1,000 output tokens – that’s up to almost 50x more expensive that Qwen2.5 Max. OpenAI’s o1 is priced at $0.0015 per 1,000 input tokens and $0.06 per 1,000 output tokens, while the much smaller GPT 4o mini is priced comparatively to Chinese rivals.
Pricing is Alibaba Stock’s Achilles Heel for AI
However, it is this pricing structure and ongoing price war in China’s AI model market that is Alibaba’s Achilles heel. While the low-cost structure is enabling Alibaba to remain extremely competitive in the face of rising competition both domestically and globally, it’s serving as a bit of a hindrance to growth, with AI revenue likely still quite below the $1 billion mark, where US tech giants are touting multi-billion dollar AI revenue streams.
Alibaba first outlined the growing demand for AI model training and AI infrastructure services in its June 2023 quarter. The following quarter in September 2023, Alibaba laid out a two-pronged strategy for driving AI growth in the cloud.
Management said that they will aim to “build the most open cloud in the AI era, providing stable and efficient AI infrastructure for all industries and enabling all sectors to go intelligent,” and “build an open and prosperous AI ecosystem.” This was underscored by its Qwen family of models, its model application development platform Bailian, and its open-source platform ModelScope. The September quarter saw ModelScope’s cumulative downloads more than double sequentially, from 45 million in July 2023 to 100 million, attracting more than 2.8 million developers.
Discussing the March 2024 quarter results, CEO Eddie Wu explained that AI is serving as a primary driver for the revenue growth that is being seen in the broader Cloud segment:
“If you look at the overall revenue growth of the Cloud business today, most of that is already being driven, I would say by AI and AI-related new products. So going forward a lot of the incremental growth we can expect to see in the Cloud business will be related to investments the customers are making in AI. But also there is a complementary effect because the more that customers invest in and make use of AI the more demand they will also have for other of our various cloud offerings.”
