Alibaba continues to develop its artificial intelligence strategy, presenting its latest quarterly results, yet analysts point out the company's challenges in converting years of investment into profits.
Alibaba Targets Business Clients
Over the past year, Alibaba has significantly invested in AI by implementing and showcasing its developments, such as integrating the Qwen-Long model into its cloud platform. This initiative underscores the company's commitment to staying ahead of competitors like Tencent and Baidu and convincing investors of tangible outcomes from long-term investments.
However, despite frequent product launches and marketing campaigns, Chinese consumers are not as eager to pay for AI subscriptions as customers in Western markets. This has led Alibaba and other companies to offer AI through cloud-based API services to enterprise customers to encourage large firms to adopt these tools on a large scale.
Price Cuts and Tough Competition Slow Down Alibaba's Growth
Shifting to enterprise clients does not resolve all of Alibaba's issues. The company faces new challenges stemming from intense competition as companies slash prices to attract customers. This approach may lead to reduced margins and raise concerns among investors regarding the viability of their investments.
For example, Alibaba slashed prices on its Qwen-Long model's API by 97%, charging 0.0005 yuan for every thousand tokens processed. Despite the short-term benefits of such discounts, the companies may struggle to generate sufficient profits in the future.
Current Financial Results of Alibaba
Alibaba reported revenues from its cloud business of 31.4 billion yuan ($4.4 billion) for the April to June quarter. This figure represents a 4.3% increase from the previous quarter and an 18% rise compared to the same period last year. However, compared to Alibaba's previous performance where faster growth was observed, the numbers appear less impressive, and the company's expansion pace is considered slow due to high competition and the need to secure financial returns from substantial AI investments.
The e-commerce segment, which remains Alibaba's primary revenue source, is also facing challenges amid economic weakness in China and aggressive competition.
Amid rising AI costs and challenges in commercialization, Alibaba continues to seek new ways to develop and achieve profitability, focusing on business clients and responding to competitive pressures.
