The recognition of Alibaba’s AI prowess by global investors has further drawn the market’s attention to Chinese AI companies. Some are concerned, however, about intense local competition, while others are worried about the impact of the US government’s export controls on semiconductor chips to China. Fund managers are also exploring opportunities across the AI and semiconductor value chain beyond Alibaba.
Alibaba’s former e-commerce dominance is well captured in Duncan Clark’s Alibaba: The House that Jack Ma Built. During the 11/11 Global Shopping Festival in 2015, shoppers spent more than US$1 billion in the first eight minutes, and by the end of 24 hours, 30 million buyers had racked up more than US$14 billion in purchases — four times the US’ Cyber Monday sales. Yet, despite still holding a 33.8% market share and generating RMB8.5 trillion in gross merchandise value, Alibaba’s e-commerce momentum has slowed in recent years.
Ch’ng Cheng Siew, chief investment officer at Areca Capital, notes that the giant’s e-commerce growth has slowed, with revenue rising just 1% in the financial year 2024.
In addition to a weaker domestic economy, fund managers note that this development is driven by the rapid rise of competing platforms — most notably PDD Holdings, which offers lower-priced white-label goods, and ByteDance, the parent company of TikTok and Douyin.
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Adding to the pressure is JD.com’s aggressive expansion into quick commerce — an online retail model that delivers groceries and convenience items within a very short time frame — which prompted Alibaba to respond with a significant investment.
Signs of softening growth in its e-commerce business had been showing, which partly explains why its share price had fallen about 80% to RMB64 in October 2022, from RMB303 in October 2020.
Alibaba’s share price, at RMB158.9 ($29) on Oct 15 this year, remains well below its peak but has rebounded significantly from recent lows as investors focus on the company’s growing cloud business and increasing AI initiatives.
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Big AI and cloud push
Ch’ng notes that Alibaba’s AI efforts have become far more visible this year, leading the market to revalue the company beyond its traditional e-commerce roots. With a pledged investment of RMB380 billion over the next three years in AI, cloud and data infrastructure, Alibaba is positioning itself for its next phase of growth.
“The group has committed substantial resources [into AI]. We are talking about hundreds of billions of yuan over the coming years to build out a full-stack AI infrastructure,” she says.
Alibaba is one of the top five holdings of the Areca Dragon Technology Fund, a wholesale fund that invests in technology companies in China, according to its September fund fact sheet.
Richard Clode, portfolio manager on the Global Technology Leaders Team at Janus Henderson Investors, agrees that investors’ focus has pivoted to Alibaba’s cloud business, given market appetite for AI exposure. The company is seen as a leader, given its scale in cloud infrastructure, and it has plans to expand its cloud capacity to 25GW from 2.5GW by 2032.
A fund manager at a foreign firm focused on China equities breaks down Alibaba’s strengths and recent AI developments. Its Qwen series of large language models (LLMs) ranks among the world’s most powerful open-source offerings, while its multimodal models — advanced AI capable of processing diverse data types beyond text — such as Wanxiang 2.5 and Qwen-Image, are approaching top-tier global standards.
In cloud computing, Alibaba leads Asia and ranks fourth globally. In China’s market, it holds a dominant 36% share — 1.8 times larger than Huawei Cloud, the second-largest provider.
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Alibaba has also developed its own AI chips, called T-Head PPU, which deliver performance close to Nvidia’s H20, released in late 2023. The T-Head PPU costs 40% less than the H20 and is deployed on Alibaba Cloud, significantly cutting its cost of inference computing power.
In addition, Alibaba has upgraded the AI features in its core applications — Quark, DingTalk and Amap — leveraging the potential of its billion-strong user base. Quark is an AI-powered super assistant, DingTalk serves as an all-in-one workplace communication and collaboration platform, and Amap is a leading digital mapping, navigation and lifestyle app in China.
“We consider Alibaba as a core Chinese AI play, as its technological leadership in cloud computing and LLMs is notably ahead of other Chinese internet companies. It has been consistently advancing AI-driven upgrades across its internal business operations, such as an AI-powered shopping assistant and AI-enabled intelligent advertising recommendations in its e-commerce segment,” says the fund manager at the foreign fund.
“Given its robust technological capabilities and leading cloud service scale, there is strong certainty regarding the share and growth of its AI business in China. The potential risk lies in AI technological backwardness or displacement. But we believe such scenarios are nearly impossible to occur in the short term.”
Transforming its e-commerce core with AI
Investors favour Alibaba as it is considered undervalued and its AI applications are helping its plateauing e-commerce business. The fund manager of the foreign firm says Alibaba’s non-GAAP forward price-earnings (P/E) ratio for FY2027 stands at a mere 16.6 times, significantly lower than that of its domestic peers.
He adds that Tencent Holdings’ FY2026 non-IFRS P/E stands at 17.6 times, whereas Alphabet and Microsoft are traded at 23.1 times and 28.6 times, respectively.
Areca’s Ch’ng says Alibaba’s revenue rose nearly 10 times in the past decade. As of March 31, the company ended FY2025 with an annual revenue of RMB996.35 billion, representing a nearly 10 times increase from a decade ago. Its share price grew about 2½ times.
Yip Kah Meng, assistant portfolio manager at AHAM Capital, says Alibaba’s forward P/E ratio is still lower than that of domestic peers such as Tencent, as well as US peers such as Amazon.com and Meta Platforms.
Areca’s Ch’ng says the current financial year is an inflexion point for the company despite its 1% revenue growth in FY2024.
In FY2025 ended March 31, Alibaba’s retail revenue rose 3%. That momentum has carried into 1QFY2026, with retail revenue rising 10% year on year.
“This turnaround comes from a strategic pivot. Alibaba merged Taobao, Ele.me and Fliggy into a unified group, creating a comprehensive consumption platform. New offerings like Taobao Instant Commerce already drive 300 million monthly users and stronger engagement, while AI-driven ad tools are lifting monetisation and merchant ROI (return on investment),” she says.
“It is also reinvesting in high-frequency areas like quick commerce, targeting RMB1 trillion in incremental gross merchandise value over three years. So, rather than plateauing, e-commerce is being redefined into an AI-enhanced growth ecosystem.”
On the other hand, Yip says Alibaba’s cloud business has grown from near break-even in 2021 to contributing about 6% of the group’s total operating profit today. Its cloud revenue growth has also reaccelerated recently, owing to higher demand for its AI-related cloud services.
“Notably, Alibaba is one of the biggest hyperscalers in China. Unlike some of its peers, Alibaba Cloud serves external clients, and we expect the company to allocate a sizeable portion of its graphics processing unit (GPU) capacity to meet rising external demand for AI solutions. This is different from other hyperscalers in China, such as Tencent and ByteDance, whose AI capital expenditure is mainly for internal use. Alibaba’s LLM Qwen is also one of the most powerful LLMs not just in China, but globally,” he says.
He adds that Alibaba’s profitable core e-commerce business and strong balance sheet would also provide healthy cash flow for the company to continue investing heavily in AI initiatives, a competitive advantage few of its domestic peers enjoy.
“The key risk is tightened regulation and increased scrutiny on internet platforms from the government,” he says.
Stiff local rivals, US export limits
Janus Henderson’s Clode views Alibaba as an affordable AI investment both locally and globally, but raises concerns about intense competition in China’s cloud market and US export restrictions on semiconductor chips to China. He notes that the cloud industry in China is highly competitive, with more than 10 players, including telecom companies controlling bandwidth and tech giants such as Huawei. This is on top of Alibaba’s e-commerce rivals such as PDD, ByteDance and JD.com.
Clode explains that Chinese customers have traditionally been less willing to pay for software services compared to hardware, which has limited the growth of software companies and slowed cloud adoption. “Given the AI excitement, competition is fierce [in China] and pricing strategy has been very aggressive. It is more challenging for companies to make returns on significant capital expenditure investments,” he says.
He also points out that US semiconductor export restrictions have hindered innovation for Chinese AI firms. While China is working hard to localise semiconductor equipment and expand domestic 7nm chip production, Clode says, “China never ceases to amaze with its innovation and speed. However, it is incredibly difficult to replicate ASML’s EUV lithography systems, which took so many years to perfect. It is highly unlikely that it will happen this decade.”
Because AI model training involves repeated runs to optimise performance, he adds, “that AI infrastructure disadvantage of China against the US will grow over time”.
ASML, a Dutch semiconductor equipment company, designs and manufactures advanced photolithography machines, including cutting-edge EUV systems essential for producing the world’s most powerful microchips.
Given the challenges in China’s AI and cloud infrastructure space, Clode has recently shifted some exposure towards Tencent, believing that the real opportunity lies in consumer-facing AI applications. He says the intense competition in infrastructure means the best way to monetise AI in China will be through end-user applications.
“Tencent has two core businesses that lend themselves naturally to AI acceleration — online advertising and online gaming,” he says, adding that the company’s reach gives it a distinct advantage. “With the ubiquity of Weixin (WeChat), Tencent can deliver both internal and external AI offerings, such as DeepSeek, quickly and easily to more than a billion highly engaged users.”
Janus Henderson Investors (Singapore) is the investment adviser for the RHB i-Sustainable Future Technology Fund, which recently won the Best Overall Fund award at The Edge Malaysia ESG Awards 2025.
Beyond Alibaba
Should investors look more towards US tech and AI companies instead? William Chang, senior client portfolio manager at the Franklin Templeton Equity Group, says both US and Chinese firms offer attractive exposure to a sector that could drive substantial gains in productivity and profitability. He notes that global demand for generative AI remains strong, and that investors may be underestimating the need for infrastructure such as cloud services, semiconductors and hardware. Looking ahead, he highlights the potential of “physical AI”, where technology “takes on more tangible forms such as robotics [and] autonomous driving”.
Areca’s Ch’ng says China’s AI ecosystem is broad and fast-evolving, led by players such as Huawei in AI chips, Baidu in LLMs, and SenseTime and iFlytek in computer vision and speech recognition. Other key chipmakers include SMIC, Hua Hong Semiconductor and Cambricon Technologies. She cautions that “this should not be taken as a ‘buy’ recommendation”, stressing that investors must assess fundamentals and risks, with Alibaba “best considered as part of a diversified approach to AI opportunities”.
According to the foreign fund manager whose firm has a large exposure to the Chinese market, no other local AI firm combines “lower business cost and higher AI content density” than Alibaba. He highlights Kuaishou Technology as another key name, noting that its Kling 2.5 Pro video generation model “ranks first globally in the text-to-video and image-to-video category”. Six months after launch, Kling has generated RMB150 million in revenue and is projected to exceed RMB1.35 billion in full-year revenue in 2025. “Based on its current market capitalisation, Kuaishou’s 2026 P/E ratio of 16.7 times makes it another attractive Chinese AI investment,” he says.
China's cloud AI and computing business is growing fast
Sun Bin, equity portfolio manager at Fullgoal Fund Management, says the cloud AI and computing segment is an oft-overlooked growth driver for China’s technology and e-commerce firms. He explains that growth “is driven by the accelerated penetration of AI and the rise of sophisticated data analytics and search solutions, especially since February this year”. He adds: “Cloud demand derived from AI has grown rapidly. Consequently, cloud revenue [of some technology and e-commerce companies] surged from the previous low-to-mid single digits to a much higher level.”
By contrast, China’s e-commerce market is relatively mature, with an online penetration rate of 31.9% and a stable overall volume. To sustain growth, companies have turned to revenue-enhancement strategies, improving monetisation through higher commission rates and better ad efficiency powered by AI.
“E-commerce companies also launched quick commerce initiatives that significantly boosted user engagement,” says Sun. “Daily active users on certain platforms have risen sharply, driving customer management revenue on their main sites.”
Founded in 1999 and based in Shanghai, Fullgoal Fund Management managed US$249 billion ($322 billion) in assets as of the second quarter of 2025. Excluding money market funds, it ranks as China’s fourth-largest mutual fund manager, specialising in equities, fixed income and quantitative strategies
