Alibaba Shares Surge on AI-Fueled Profit Beat

Alibaba Group Holdings Ltd. (BABA) saw its U.S.-listed shares climb over 12% after the Chinese technology giant reported a stunning 76% year-over-year increase in first-quarter net income, driven by a booming cloud and artificial intelligence business that is showing signs of paying off its heavy investment. The company posted a net income of $5.9 billion, crushing the $3.7 billion consensus estimate and signaling to investors that its strategic pivot toward AI is gaining significant traction.

The surge in profitability came despite a slight miss on revenue, which came in at $34.6 billion against an expected $35.2 billion. However, the market appeared to look past the top-line miss, focusing instead on the impressive growth within Alibaba's Cloud Intelligence group. The division's revenue accelerated to 26% growth, reaching $4.7 billion. Underscoring the investor optimism, the company revealed that its AI-related cloud revenue has grown at a triple-digit rate for the eighth consecutive quarter.

This robust performance in high-tech sectors is the fruit of a massive capital expenditure program. Alibaba invested $5.4 billion in its cloud infrastructure during the quarter and reaffirmed a three-year, $53 billion commitment to build out its cloud and AI capabilities. The investment is seen as a critical move to stay competitive in the global AI race, particularly as geopolitical tensions between the U.S. and China continue to simmer.

Adding to the bullish sentiment, reports surfaced that Alibaba has developed a new AI chip that could serve as a domestic alternative to Nvidia's powerful processors. With China reportedly discouraging the use of some of Nvidia's chips, Alibaba's in-house semiconductor development is a significant step toward technological self-reliance and could insulate it from U.S. export restrictions. According to The Wall Street Journal, the new chip is designed for a broad range of AI inference tasks and, crucially, is software-compatible with Nvidia's ecosystem, which would ease the transition for developers.

While the cloud and AI segments captured the spotlight, Alibaba's core e-commerce business also showed resilience, with domestic revenue growing by 10%. However, the segment faced margin pressure due to intense competition and heavy investment in initiatives like Taobao Instant Commerce, which promises one-hour delivery. Adjusted EBITDA for the group fell 11% as the company continues to spend to defend its market share in a fiercely competitive domestic market.

Despite the challenges, investors are signaling renewed confidence in Alibaba's long-term strategy. The company's stock has more than doubled from its 2022 lows, though it remains about 63% below its all-time high from late 2020. Trading at just 18 times earnings, some analysts see the stock as undervalued for a technology giant with a compelling AI growth narrative, offering a key entry point for investors seeking exposure to China's burgeoning tech sector.