Alibaba said it has moved beyond the early stage of artificial intelligence (AI) investment and entered a phase of full commercialisation. It also unveiled a strategy to pivot in earnest to AI and cloud as its next core growth pillars. With growth in its core commerce business continuing to slow, this is seen as an effort to speed up a shift to an AI-centred business structure.

On May 21 local time, the Hong Kong-based South China Morning Post (SCMP) reported that Alibaba said in a recent shareholder letter that its AI business has moved past an experimental stage and into commercialisation. It stressed it would cultivate the business as a key growth engine going forward.

Chairman Joe Tsai (조 차이) and Chief Executive Eddie Wu (에디 우) said in a joint letter that the market for companies that can provide full-stack AI capabilities like Alibaba will expand exponentially. They described the current moment as a "major inflection point" in the development of artificial general intelligence (AGI).

Alibaba said it is building a full-cycle AI ecosystem spanning everything from semiconductor design unit T-Head to cloud infrastructure, a model service platform, Qwen-based large language models and the enterprise agent platform WuKong. The company explained that this structure makes it the only company in China operating all five layers of the full AI stack.

At a cloud summit in Hangzhou, Liu Weiguang, senior vice president of Alibaba's cloud business, said the company is building "China's AI factory". He stressed a shift into an infrastructure company that integrates AI production and services across the board.

The strategic shift is tied to a slowdown in its existing commerce business. Alibaba's China e-commerce revenue in the March quarter, excluding quick commerce and wholesale, fell 1% from a year earlier to 96.3 billion yuan. The company said it is actively using AI technology to increase user traffic and customer engagement.

Its cloud business, by contrast, continued to post clear growth. Over the same period, Alibaba's total quarterly revenue was 243.4 billion yuan, and cloud revenue rose 38% year-on-year to 41.6 billion yuan. Cloud revenue from external customers increased 40%.

In particular, Alibaba disclosed revenue from AI-related products for the first time this quarter, putting it at 8.97 billion yuan. The AI business recorded triple-digit growth for 11 consecutive quarters, and its share of cloud revenue expanded to about 30%.

Alibaba management said it expects annual recurring revenue (ARR) from AI models and applications to reach 30 billion yuan by year-end. It also forecast that AI products will account for more than half of cloud revenue within the next year.

Tsai and Wu also stressed that AI agents will become the core interface of the digital economy. They said, "A vast number of AI agents will connect humans and the digital world and take on more tasks."

Alibaba also plans to further expand investment in AI and cloud infrastructure under a 380 billion yuan capital expenditure plan over the next three years. Markets are watching whether this aggressive investment stance can translate into actual profitability and increased recurring revenue.

Against this backdrop, Alibaba said it will use talent, technology and resources to grow "AI+Cloud" (AI + Cloud) into another growth engine. A key point to watch is whether large-scale capital spending leads to greater recurring revenue and improved cloud profitability.