Alibaba is showing credible progress on AI driven by the increasing popularity of its Qwen model, but the gains are not yet large enough to offset margin pressure in its core Taobao/Tmall franchise. Quick‑commerce has lifted top‑line growth, yet price competition has impacted segment profitability and dragged down group earnings. Near‑term losses may narrow as scale and rational subsidy policies emerge, but a durable recovery remains some way off.
AI—clear momentum
Alibaba’s march into generative AI has moved beyond proof of concept to tangible adoption. Its flagship AI model, Qwen, has won notable endorsements and rapid ecosystem uptake thanks to its open‑source, low‑cost strategy.
- Singapore’s national AI programme has moved from Meta to Qwen to develop its Southeast Asian languages LLM.
- Airbnb’s CEO has noted significant reliance on Qwen for its app rather than ChatGPT.
- On Hugging Face (a major open-source platform and community for machine learning and AI), over 180k derivative models have been built from Qwen—more than twice the next player—illustrating strong developer engagement.
- Alibaba has recently launched its consumer Qwen app, with more than 10mn downloads within the first week.
Financially, the AI story is beginning to show in the numbers. AI and cloud revenue growth accelerated to the mid‑30s year‑on‑year in 3Q25, with management flagging triple‑digit increases in certain AI‑related lines.
AI capex: The company has invested RMB120bn in AI/cloud infrastructure over the past four quarters and may need to increase its RMB380bn three‑year AI capex plan to meet strong demand.
On the flip side, AI and cloud revenue only accounted for 16% of total revenue and was unable to offset the more challenging operating environment in the core e-commerce segment in the meantime.
E-commerce: Margin pressure from price competition
Taobao and Tmall remain Alibaba’s economic backbone, accounting for more than half of group revenue. Headline growth looks respectable — group revenue rose 16% YoY in 3Q25, helped by a 60% surge in quick commerce. Yet that topline momentum covers a deterioration in profitability. Taobao/Tmall EBITDA margins plunged to single digits in the quarter, a sharp swing from the mid‑20s previously and well below historical levels. The knock‑on effect was a collapse in group margins and a steep decline in core net profit.
The cause is a price war in quick commerce: heavy subsidies and aggressive marketing have traded market share for profitability. Scale alone is no remedy when unit economics are negative; the battle for volume has come at the expense of durable margins.
Outlook: Management expects e‑commerce growth to moderate and margin volatility to persist. Quick‑commerce losses could narrow due to improving scale and more rational investments in marketing and subsidies, but the timing and extent of recovery depend on competitor behaviour and the pace of rationalisation.
Alibaba now runs on two very different economic engines: a capital‑intensive, high‑potential AI/cloud franchise that is winning mindshare and developer activity and an e‑commerce business under margin pressure from price wars. The strategy of building AI capabilities while defending the core commerce business remains coherent. For investors, the questions are straightforward: when will industry pricing normalize, and can Alibaba turn Qwen traction into sizeable, margin‑accretive revenue?
This article is for information only and is not investment advice or a solicitation to buy or sell securities. This article does not constitute a “Personal Recommendation” or investment advice under UK FCA regulations. The author holds NO position in the securities mentioned. There is no warranty as to completeness or correctness. Please do your own due diligence or consult a licensed financial adviser. Investing in Asian markets involves significant risk. Please read the Full Disclaimer before acting on any information. Images and videos created with the assistance of Gemini AI.
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