AI demand returns Alibaba Cloud to company growth engine as e-commerce slows

While Taobao and Tmall missed estimates amid intensifying competition, the tech giant’s cloud growth stood out amid ‘robust demand’ for AI products

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Demand for artificial intelligence services such as those powered by Alibaba’s Tongyi Qianwen is helping to shore up the company’s cloud business while e-commerce struggles with low consumer spending and competition. Photo: Shutterstock

Ann Caoin Shanghai

Published: 8:00am, 18 Aug 2024

Alibaba Group Holding’s big investment in artificial intelligence (AI) is already bearing fruit, as the company’s cloud computing business emerged as the shining star in its latest quarterly earnings while e-commerce missed expectations.

AI has been a key driver of cloud growth at Alibaba, owner of the South China Morning Post. In the three months to June, AI-related product revenue continued to see triple-digit year-on-year growth, according to the company.

“Alibaba’s AI-driven, user-first strategy has achieved initial success over the past year,” said Chen Hudong, a researcher at the Chinese e-commerce research institute 100ec.

AI investment has boosted the company’s revenue in search and recommendation scenarios, Chen said, and helped increase the frequency with which shoppers repurchase products on the company’s e-commerce platforms such as Taobao and Tmall.

Alibaba’s June quarter was a mixed bag. The company reported 4 per cent year-on-year revenue growth to 243.2 billion yuan (US$33.5 billion), but it was lower than estimates. It raised questions about the company’s efforts to refocus on e-commerce and stabilise its domestic market share amid intensifying competition.

While Taobao and Tmall Group saw revenue decline 1 per cent to 113.4 billion yuan, missing the estimated 117.6 billion yuan, the Cloud Intelligence Group, which includes Alibaba’s AI business, recorded its fastest growth since the September 2022 quarter, growing 6 per cent year on year to 26.5 billion yuan.

The results signalled that cloud computing remains Alibaba’s main growth engine, despite being briefly outshined by international e-commerce, which surpassed cloud in revenue growth in late 2022. Cloud growth has remained in the single digits for most quarters since then.