Alibaba shares rise as AI drives cloud sales jump

Alibaba could ramp up spending on artificial intelligence beyond its projected levels if demand for the technology continues to remain strong, CEO Eddie Wu said Tuesday, after the Chinese tech giant reported accelerated sales at its key cloud division.

Alibaba’s New York-listed shares were around 4.3% higher in premarket trade as investors looked past a plunge in profitability at the group.

Here’s how the company did in its fiscal second quarter ended Sept. 30 versus LSEG estimates:

• Revenue rose 5% to 247.8 billion Chinese yuan ($34.8 billion) versus 242.65 billion yuan the previous year.

Investors are focused on Alibaba’s cloud computing division which books its revenue related to artificial intelligence. Over the past few quarters, Alibaba’s cloud revenue growth has accelerated.

Alibaba reported a 34% year-on-year rise in cloud computing revenue to 39.8 billion yuan versus expectations of 37.9 billion yuan. That growth rate was faster than the 26% notched in the June quarter.

The Chinese tech giant said its investments in AI were helping its cloud unit.

“Robust AI demand further accelerated our Cloud Intelligence Group business, with revenue up 34% and AI-related product revenue achieving triple-digit year-over-year growth for the ninth consecutive quarter,” CEO Eddie Wu said in an earnings statement on Tuesday.

Wu said demand for Alibaba’s AI products is “accelerating.”

“Certainly, we see that customer demand for AI is and remains very strong. In fact, we are not even able to keep pace with the growth in customer demand … in terms of the pace at which we can deploy new servers,” Wu said.

In September, the company said it plans to increase spending on AI models and infrastructure development, on top of the 380 billion yuan ($53 billion) over three years it announced in February. Alibaba said on Tuesday it has spent around 120 billion yuan in capital expenditure toward AI and cloud infrastructure over the past four quarters.

Addressing the capex figure, Wu said that the initial 380 billion yuan target “might be on the small side.” He added that Alibaba “wouldn’t rule out further scaling up that capex investment,” if demand continues to remain strong.

Alibaba has emerged as one of China’s leading AI players. On Monday, Alibaba said its Qwen app, the Chinese giant’s rival to OpenAI’s ChatGPT, surpassed 10 million downloads within the first week of its public launch. The app is powered by Alibaba’s Qwen artificial intelligence models.

Earnings before interest, taxes, and amortization (EBITA), a measure of profitability, increased by 35% to 3.6 billion yuan for its cloud division.

Wu laid out his view of the market suggesting AI models were not hitting a wall in terms of their capabilities. He said that over…