China’s tech titans Alibaba and Tencent recently reported their Q3 2024 earnings, revealing diverging paths in the cloud computing market, with artificial intelligence (AI) driving their growth strategies.
Alibaba Cloud’s revenue increased by 7% year-over-year to RMB 29.6 billion ($4.2 billion), fueled largely by surging demand for AI-related products. According to CEO Eddie Wu, AI tools now contribute a growing share of the cloud segment’s revenue.
Meanwhile, CFO Toby Xu noted that AI-related offerings have achieved triple-digit annual growth for five consecutive quarters, underscoring their impact on Alibaba’s public cloud solutions.
Notably, the cloud division’s adjusted EBITA jumped 89% to RMB 2.7 billion ($372.75 million), with margins improving to 9%. Xu attributed this to a shift towards higher-margin products like AI services and efficiency improvements, though he acknowledged ongoing investments in technology and customer acquisition.
In response to rising competition, Alibaba reduced its cloud pricing earlier this year. Wu framed the decision as an investment in user growth, aiming to attract businesses deploying AI models. “Lowering the API token price encourages usage of our compute, storage, and database products,” Wu explained, describing this strategy as essential for expanding Alibaba’s cloud ecosystem.
Tencent, on the other hand, has faced challenges in turning its AI investments into significant revenue. Tencent president Martin Lau cited limited AI start-up activity in China and a slower adoption pace compared to the U.S. However, Lau remains optimistic, projecting scalable AI use cases in the coming quarters.
Despite these hurdles, Tencent’s overall fintech and business services segment, which includes cloud operations, posted a revenue of RMB 53.1 billion ($7.33 billion), up 7% year-over-year. Higher cloud service demand and cost efficiencies contributed to the segment’s 48% gross margin.
Additionally, Tencent’s cloud revenue from GPUs, critical for AI workloads, grew rapidly, now accounting for a meaningful portion of its cloud services.
As Alibaba builds momentum and Tencent continues to refine its AI monetization strategy, the competition underscores the transformative potential of AI in reshaping China’s cloud landscape. Both companies are betting big on AI infrastructure, and their trajectories will likely shape the region’s digital economy for years to come.
