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On February 20, Alibaba Group released its performance report for the third quarter of the 2025 fiscal year, unveiling financial results that echo the significant impact of artificial intelligence (AI) on its operationsWith a revenue of 280.15 billion yuan, representing an 8% increase year-on-year, and a net profit of 48.945 billion yuan attributed to shareholders, the figures reflect a resilient and innovative business strategy.
Notably, the Cloud Intelligence Group has recorded an impressive revenue of 31.742 billion yuan (approximately 4.349 billion USD), marking a 13% increase compared to the previous yearThis growth rate is particularly remarkable as it almost doubled from 7% growth in the prior quarterThis significant uptick is indicative of how AI-driven products have continued to perform robustly, with revenues associated with AI products witnessing a consecutive six-quarter trend of triple-digit year-on-year growthThe strategic pivot towards integrating new technologies positions AI as a potential new engine of growth for Alibaba moving forward.
Alibaba's current valuation appears to be at historic lows, yet its advancements in AI have bolstered market confidence in its future growth prospectsLeading financial institutions such as Morgan Stanley and Goldman Sachs are optimistic, stating that the proliferation of low-cost, high-performance AI models will likely generate explosive demand and broaden commercial applications within the AI sector, thereby benefiting cloud service providers like Alibaba.
Since the beginning of the year, Alibaba's stock has been on a sharp upward trajectory, escalating from 80 to 129 USD by mid-February—a notable increase exceeding 50%. This bullish trend saw a 10% rise in its pre-market trading on February 20, reflecting strong investor sentiment buoyed by the company's promising future.
Examining deeper into the AI-driven strategy, the third quarter demonstrated tangible outcomesThe Cloud segment, which relies heavily on AI product offerings, reported significant revenue growth primarily driven by public cloud products, inclusive of AI-related innovations
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The adjusted EBITA stood at 3.138 billion yuan (around 430 million USD), climbing 33% from the previous year, attributable to a shift towards higher-margin public cloud products.
CEO Wu Yongming emphasized their commitment to advancing deep reasoning models based on Qwen 2.5-MAXCentral to Alibaba’s AI framework, this large model has been performing exceptionally well across various authoritative benchmarks since its introduction in 2023. The commitment to fostering multi-modal AI technologies and expanding open-source initiatives is part of Alibaba's broader strategy to remain at the forefront of AI development.
In January 2025, Alibaba launched the large-scale MoE model, Qwen 2.5-Max, boasting significant capabilities that outperform renowned models such as DeepSeek-V3, GPT-4o, and Llama-3.1-405BThis architecture allows the company to develop models with significantly lower resource consumption—requiring merely 200 trillion tokens for training—thereby enhancing operational efficiency and resource utilization during deployment.
Industry analysts assert that Qwen 2.5-Max represents a significant breakthrough for Chinese AI technology via a high-performance, low-cost trajectory, solidifying Alibaba's leadership position in the sectorThe Qwen model family has burgeoned to become one of the world's largest AI model families, with over 90,000 derived models on Hugging Face as of January 31, 2025.
However, investors should note that in the latest quarter, capital expenditures surged to 31.775 billion yuan, marking an 80% quarter-on-quarter increaseDuring the earnings call, Wu highlighted the prioritization of artificial general intelligence (AGI), detailing plans for increased investments across three core areas of AI over the next three yearsThe first area focuses on bolstering AI and cloud infrastructure, reflecting the enormous demand for robust AI capabilitiesAlibaba anticipates that AI infrastructure spending in the next three years will likely exceed total expenditures of the past decade.
The second investment area emphasizes developing platforms for foundational AI models and AI-native applications, which are critical for driving productivity transformations across industries
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Ensuring technological advancement and an industry-leading position will be fundamental as the company ramps up its research investment in foundational AI models.
The third key area involves upgrading existing business operations through AIFor e-commerce and other internet services, upgrading with AI technology presents a significant opportunity for enhancing user value, prompting continued increases in research investments and computational resources dedicated to AI application enhancements across Alibaba’s various businesses, thus positioning the company to capitalize on new opportunities presented by the AI era.
"In the upcoming three years, our investments in cloud and AI infrastructure will exceed 10 years' worth of spending," Wu confirmed, denoting that this period will likely encompass the most intensive phase of cloud construction for Alibaba, as they anticipate user and industry demands will swiftly absorb the investments made.
The key to Alibaba's impressive performance in AI is largely supported by the robust foundation provided by Alibaba CloudThe interdependence between AI and cloud computing is essential; potent AI models rely on the strong AI infrastructure offered by cloud computing servicesWu mentioned that Alibaba Cloud is pouring unprecedented resources into AI technology development and foundational infrastructure constructionOver the past year, the company has undertaken substantial upgrades to the technological architecture that encompasses servers, computing, storage, networking, data processing, and model training platforms.
Industry insiders argue that Alibaba's holistic strategy of integrating cloud and AI has fostered a complete feedback loop from AI innovation through to commercialization, meeting the growing demands from developers and enterprises seeking efficient, high-performance AI modelsThe earnings report asserts that Alibaba is steadfast in its commitment, especially towards expanding AI infrastructure.
Moreover, the timing of Alibaba’s third-quarter earnings coincided with a wave of revaluation in Chinese tech stocks. "DeepSeek has broken traditional narratives and is expected to guide the global stage for a phase reassessment of Chinese tech," stated Liu Chenming, chief analyst at Guangfa Strategy, during an interview
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