Alibaba Stock Skyrockets as AI Expansion Gains Unstoppable Momentum

Tech Giant's Aggressive AI Investments Fuel Investor Optimism / Photo by Fang Dongxu/VCG via Getty Images

Alibaba’s (BABA) US-listed shares surged by as much as 11% in premarket trading on Thursday after the Chinese e-commerce and cloud computing giant exceeded Wall Street’s expectations in its latest earnings report and underscored its rapid expansion into artificial intelligence.

For the quarter, Alibaba posted adjusted earnings per share of RMB 20.39 ($2.79), outpacing analyst estimates of RMB 19.12 ($2.63), while revenue reached RMB 280.2 billion ($38.4 billion), surpassing projections of RMB 277.4 billion ($38.2 billion), according to Bloomberg’s consensus estimates.

During an earnings call, Alibaba CFO Toby Xu highlighted the company’s remarkable progress in AI-related revenue, stating, “Our AI momentum remains robust with AI-related product revenue sustaining triple-digit growth for the sixth consecutive quarter.”

Investor confidence in Alibaba has been rising sharply, with the stock climbing approximately 48% over the past month. This surge comes amid excitement surrounding a breakthrough AI model developed by the Chinese firm DeepSeek, which has fueled speculation about growing demand for Alibaba’s AI-driven cloud computing solutions. Reports indicate that Alibaba is considering a direct investment in DeepSeek, further bolstering its AI portfolio. Additionally, the company is reportedly in talks with Apple (AAPL) to integrate AI-powered features into iPhones sold in China.

Despite AI-driven optimism, Alibaba’s cloud computing unit remains a smaller contributor to total revenue compared to its dominant e-commerce division. In its fiscal third quarter, cloud computing revenue rose 13% year-over-year to RMB 31.7 billion ($4.3 billion), while its core e-commerce segment generated RMB 100.8 billion ($13.8 billion).

Alibaba CEO Eddie Wu expressed confidence in the company’s AI-driven future, stating, “Looking ahead, revenue growth at Cloud Intelligence Group driven by AI will continue to accelerate.” To capitalize on the AI revolution, Alibaba is planning a significant increase in capital expenditures over the next three years, with Wu emphasizing, “The AI era presents a clear and massive demand for infrastructure. We will aggressively invest in AI infrastructure.”

Wu further revealed that Alibaba’s planned investments in cloud computing and AI infrastructure over the next three years will surpass the company’s total spending in this sector over the past decade. While this bold strategy could impact short-term profitability, Wu justified the move by pointing to the vast long-term opportunities presented by AI adoption.

“This next three-year period will likely be the most concentrated and highest level of investments we have ever made in AI and cloud-related infrastructure,” Wu explained. “Naturally, the increased hardware investment will have an impact on short-term financials, but it reflects our confidence in the substantial demand ahead.”

However, much like US-based tech giants, Alibaba has yet to provide full clarity on how exactly it plans to monetize its massive AI investments. Wu acknowledged this uncertainty, stating, “The future business models and revenue streams for AI-powered solutions are not entirely clear today, but we are confident in the long-term potential.”

With Alibaba making aggressive moves in the AI sector, investors and analysts will closely watch how the company leverages its expanding AI infrastructure to drive sustained growth in both its cloud computing and e-commerce businesses.