Alibaba has been strategically utilizing its extensive cloud computing infrastructure to emerge as a key investor in China’s burgeoning artificial intelligence (AI) start-ups, deviating from conventional cash-for-equity funding models by offering them credits to access the scarce network resources essential for training models.
The Chinese e-commerce titan aims to replicate the success of Microsoft’s investment in the US-based frontrunner, OpenAI, by acquiring stakes in notable start-ups like Moonshot, Zhipu, MiniMax, and 01.ai.
These start-ups are actively developing localized versions of prominent US applications such as OpenAI’s ChatGPT and Character.ai’s avatar chatbot.
For instance, Alibaba led a substantial $1 billion fundraising round in Moonshot AI in February, valuing the start-up at $2.5 billion.
Approximately $800 million of Alibaba’s investment in the fast-growing Kimi AI chatbot developer consisted of cloud computing credits, according to sources familiar with the transaction, although Alibaba declined to comment.
Over the past year, Alibaba’s CEO, Eddie Yongming Wu, has personally supervised investments in these leading AI start-ups, underscoring the company’s aspiration to position itself as a trailblazer in AI innovation.
This surge in investment coincides with a pivotal juncture for Alibaba. It strives to go through a new trajectory amid mounting competition from ByteDance and PDD Holdings in its core e-commerce sector.
Additionally, Alibaba’s ambitious restructuring plan, particularly its cloud business’s intended initial public offering, was disrupted, leading to Wu assuming direct control of the cloud division. He pledged to invest in AI, making it the focal point of Alibaba’s growth strategy.
Alibaba’s cloud arm has faced challenges, experiencing single-digit quarterly growth since 2022 following Beijing’s crackdown on major internet companies. Its profitability has lagged behind US counterparts like AWS.
Charlie Dai, vice-president and principal analyst at tech consultancy Forrester, noted that Alibaba is facilitating start-ups by providing a public cloud platform with comprehensive capabilities while generating new revenue for its cloud business through computing resources provisioned to train their models.
Alibaba’s investment structure mirrors that of Microsoft and Amazon, where funds are transferred to AI start-ups under the condition that they utilize the money for training and running models on Azure and AWS servers, respectively.
However, a notable distinction with Alibaba’s investment is that funds are not directly transferred to Chinese start-ups but held in an escrow account, countable as incoming revenue.
In China, where cloud resources are constrained due to US restrictions on advanced chip exports, computing-for-equity offers hold greater appeal. With semiconductor shortages, access to resources like Alibaba’s 10,000 GPU clusters is highly coveted.
Meanwhile, the social media group Xiaohongshu employs an innovative investment approach, offering increased traffic for start-ups’ products through promotions on its popular platform in exchange for equity.
China’s major internet companies, including Alibaba, Meituan, Xiaohongshu, and Tencent, wield substantial influence in financing this wave of start-ups compared to previous cohorts dominated by surveillance firms like SenseTime and Megvii.
Alibaba’s ascent as a prominent AI investor coincides with its endeavor to capitalize on its AI chip stockpile. Alibaba Cloud procured high-end Nvidia graphics processing units before US restrictions, positioning them in data centers across China and Southeast Asia.
As Alibaba intensifies its focus on AI investments, it marks a new chapter post-regulatory scrutiny, positioning the company as a pivotal supporter of AI innovation in China. Industry insiders jest that investing in Alibaba stock equates to investing in China AI, referring to it as a de facto China AI ETF.
