Artificial intelligence as a growth driver

After a challenging period for Alibaba's cloud division, marked by the cancellation of a planned IPO and a management reorganisation, comes a significant expansion of cloud computing services to help it grow. Cloud services will be available for the first time in Mexico, while the expansion plan also includes the construction of data centres in Malaysia, South Korea and Thailand over the next three years. Growth is also set to be supported by existing artificial intelligence products and an expanded customer base. To this end, Alibaba strengthened its partnership with French conglomerate LVMH in mid-May 2024, which has started to use its AI tools in the Chinese market. Tongyi Qianwen's big language model, similar to ChatGPT, was first introduced back in April last year, but the recently released more advanced version is meant to compete not only with companies like Baidu and Tencent operating domestically, but also international giants Microsoft, OpenAI and Google.

Excels in Asia, lags behind globally

Company executives told CNBC that AI is the future and delivered an optimistic forecast regarding the potential in this sector, as it is Alibaba Cloud that is seen as key to the future of the entire company. Although the division has faced slower growth in recent months, the management expects the second half of the fiscal year to deliver double-digit growth, thanks in part to innovation and AI support. [1] According to Synergy Research Group, Alibaba Cloud has been the market leader in China since its launch in 2015, with a 39 percent market share, but has less than 5 percent of the global market, well behind giants such as Amazon, Microsoft and Google, which cover up to 67 percent of the market.

Supporting startups

In addition to internal investments in AI, Alibaba Group also invests in external ventures. According to the South China Morning Post, Alibaba has provided an investment of USD 800 million to Moonshot AI, giving it a 36 percent stake in one of China's leading AI startups. With this investment, Moonshot AI is worth approximately USD 2.2 billion. As reported by ITJuzi.com, Alibaba is also a major backer of other Chinese startups, including Baichuan, Zhipu AI and MiniMax, making it one of the most active investors in the country's "AI startups".

A stellar name as a guarantee of success?

In addition to investing in the AI sector, the company has not forgotten its primary business of online sales, which it wants to strengthen through a star face. According to Nikkei Asia, the AliExpress subsidiary has in fact signed a one-year cooperation with football star David Beckham, who will become the first global brand ambassador. The collaboration with the footballer will include advertising during the European Football Championship, which is a similar strategy to Temu, which used ads during the Super Bowl to promote its app, the retailer is aiming for. The move could be very significant as the competitive pressure from Chinese online retailers intensifies as Temu and Shein begin to make a strong push in the US and Europe.  AliExpress has been focusing on the Korean and Middle Eastern markets in recent years, but this year it plans to turn its attention to American consumers. However, trade tensions and strict regulatory controls in both Europe and the US may be a barrier to expansion.[1]

Declining shares

The coming months will show whether the collaboration with Beckham will represent a "successful move on a rival's goal" and help Alibaba's declining stock market shares. Despite a 16-percent rise in its value on the NYSE since the start of 2024 to $81 per share (as of May 28, 2024), it is still in a steep decline from its all-time high reached in October 2020. At that time, the price stood at $310 per share, a more than 73-percent difference from its current value. The market capitalization stands at over $19 billion, according to Companiesmarketcap.com.

Alibaba's share price performance over the past 5 years (source: Trading Economics) *

Olivia Lacenova, principal analyst at Wonderinterest Trading Ltd.

[*] Past performance is no guarantee of future results

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://asia.nikkei.com/Business/Companies/Alibaba-unit-signs-David-Beckham-as-it-shoots-for-global-expansion