Alibaba Q3 FY25: Forget About ROI, Let's Talk About AGI

Alibaba to invest "aggressively" in AI; the next 3 years capex will be the same as the last 10 years in aggregate

Hi all, this will be a quick earnings wrap piece.

I can't remember the last time that investors were so excited about Alibaba's earnings. All ears were for Alibaba’s ($BABA) earnings last night, and I believe the server was having a hard time handling the interest, as my call was quite glitchy in the beginning. But this time, no one was expecting jaw-dropping MAU growth numbers for its commerce businesses. At the end of the day, the company has had over 930 million MAUs for years now. How much is there to really grow when the whole population is 1.4 billion? (today, let’s only focus on AI)

Leading with 13% yoy in cloud business revenue growth driven by double-digit gains in public cloud revenue (AI, duh), compared to ~7% the quarter before and ~5% before that. In fact, the company is strategically heavily investing in AI capex.

[You can find the 6K filing here]

On the earnings call, Alibaba CEO Eddie Wu said that the company would “aggressively invest” more capital into AI in the next three years (at least RMB100 billion—USD13.78 billion—per year) than it did in the last ten years in aggregate. When asked by a Citibank analyst if he could give more information on how the spending will look, Eddie said this is a “huge opportunity,” something that comes around once in decades.

Ultimately, for Alibaba, AGI is the main goal, and the company will continue to push forward the technical capabilities of its LLM Qwen. Although the monetization strategy is not clear yet, he is certain it will come through. By continuing to offer a strong cloud service (number one in China) and a leading open-source LLM, Alibaba is well-positioned to capture AI opportunities in the future. Eddie added that he believes that in the future, 90% of AI computing will be centralized and not on edge, and Alibaba has the advantage in cloud infrastructure. He concluded his answer with an analogy of AI being electricity and AI cloud computing power being the electricity grid that enables it all.

(This is not translated verbatim. It’s my notes from the call. The official transcript will be up on its investor relations page within the week).

Ok, now let’s look at the financials.

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AI as the Growth Engine

Alibaba Group’s Q3 FY25 results highlight more than just strong performance—they mark the beginning of a profound shift toward artificial intelligence (AI) as the tech behemoth's core driver of future growth.

The company’s 8% year-over-year revenue growth in Q3, powered by strong performances in customer management revenue (CMR) and cloud, shows that its core businesses are back on track. However, what truly stands out in this quarter’s earnings is the company’s focus on AI and its growing potential to redefine both business operations and the broader Chinese tech ecosystem. With AI-related revenue maintaining triple-digit growth for the sixth consecutive quarter, Alibaba’s push to integrate AI across its business models is clear.

As explored in my previous articles, China’s AI Application: Super Powered, Why Tencent’s Integration of DeepSeek, and AI at the Speed of Light: Tencent, China’s leading tech companies, including Alibaba, are harnessing AI not just as a tool, but as the engine driving next-generation innovation and monetization.

Long-term AI Strategy

AI Infrastructure and Multi-Chip Design

Alibaba’s massive capital allocation reflects its executives’ belief in AI's transformative power. The company aims to position itself as a leader in AI infrastructure and a hub for AI innovation across multiple industries.

In line with broader trends in China’s AI application landscape, this infrastructure will power everything from cloud computing to AI-native applications, accelerating the development of tools and services that can drive productivity across sectors. Shaping the future of AI-driven business models.

The company further emphasized that Alibaba Cloud adopts multi-chip infrastructure capabilities, which positions it well to maintain its planned investment trajectory, regardless of potential regulatory challenges.

Proprietary AI Models and the Open Ecosystem

As written in the Alibaba AI strategy primer, the heart of Alibaba’s AI strategy is its commitment to developing proprietary AI models, such as the Qwen2.5-Max’s strength and uniqueness before DeepSeek came out with an open-source model was its technological prowess, but also because it was one of the only leading models in China that fostered an open ecosystem. With over 90,000 derivative models developed on Alibaba’s platform, the company is creating an AI-driven environment where developers, businesses, and even consumers can tap into cutting-edge technology - which then they can access the talents/innovation/data and then upsell their cloud services.

Company presentation found on IR page

However, the most intriguing aspect revealed during this earnings call was perhaps the fact that Alibaba’s AI strategy is its long-term goal of achieving artificial general intelligence (AGI). Eddie said on the call that, based on research, 50% of the global GDP could potentially be replaced by AI once AGI is achieved, a significant shift in labor dynamics in the world today.

The CEO emphasized that this focus on AI isn’t just about innovation for innovation’s sake. It’s about creating a competitive edge in a rapidly changing market. Alibaba is using AI not only to improve the efficiency of its e-commerce operations but also to enhance the user experience and increase monetization opportunities. Consumer-facing apps like Kuake and Tongyi are seeing strong user engagement, and by leveraging the Qwen models, Alibaba is adopting AI integration across platforms like Taobao, which is helping to enhance transaction efficiency and merchant support. All of these are consumer-facing innovations on top of its grand investment plan on AI infrastructure. On top of that, it’s enterprise software Dingtalk (the Slack of China) has ample opportunity to utilize AI to help productivity and efficiency in the workflow.

Broader Impact on China’s AI Landscape

As I’ve highlighted in the past, the country’s tech giants are increasingly focusing on AI as a central driver of economic growth. Alibaba’s latest earnings report underscores the company’s shift from focusing solely on short-term ROI to pursuing long-term AI and AGI ambitions. With its massive investments in AI infrastructure and commitment to developing proprietary AI models, Alibaba is positioning itself as a leader not just in the cloud space but also in the future of artificial intelligence. As AGI looms on the horizon-ish (give it another few years and we can circle back), Alibaba is trying to build the foundation for a new era in technology—one where it may shape the future of human productivity itself.

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Full disclosure: I worked at Alibaba during its most tumultuous years, and I am forever grateful for that opportunity and the friends I made there. However, in 2020, the company was in a position of weakness, and the founder, Jack Ma, despite his outlandish nature, went into a bit of hiding. The whole big tech industry was faced with an anti-monopoly probe that resulted in a record fine of USD 2.8 billion from Alibaba to the government for abusing market dominance.

That was followed by continuously losing market share to newcomer Pinduoduo (PDD) in e-commerce, which was caused by overlooking competition. But to be fair to the company, there was also an overall economic slowdown and, therefore, consumption downgrade, and as Alibaba’s Taobao/Tmall was to capture higher priced goods compared to PDD’s platform, offering low-cost white label products mostly, Alibaba was hit quite hard. Coupled with an intensifying trade war, ADR delisting risks, and a few corporate governance scandals… All of this did not contribute positively to the company’s growth over the last few years, and we saw the stock price drop from an all-time high of ~USD 310 to as low as ~USD 60. Things were kind of lackluster.

UNTIL NOW.

China Tech is back, and BAT is back. I don’t know if they’ll actually achieve AGI, but at least every retail investor auntie is getting their money back after the wild ride of the last five years.