<div id="readability-page-1"><p><strong>Alibaba Group</strong> <span>(BABA<span> 3.48%</span>)</span> has been through a rocky few years. The company faced regulatory crackdowns, intensifying competition in Chinese e-commerce, and slowing macroeconomic growth at home. Its stock fell from grace, leaving long-term investors questioning whether China's once-dominant tech champion had lost its edge.</p> <p>But Alibaba's latest results suggest a turning point. While e-commerce remains its core, the company's cloud business -- particularly artificial intelligence (AI) services -- is emerging as the new growth engine. If the trend continues, it could reshape how investors view Alibaba's long-term potential.</p> <div><p><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MzIxMzYvYWktMy5qcGcmdz03MDA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="383" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MzIxMzYvYWktMy5qcGcmdz03MDA"/></p><p>Image source: Getty Images.</p> </div> <h2>A reset after years of headwinds</h2> <p>Launched in 2009, Alibaba Cloud grew into China's largest provider, with roughly one-third market share, ahead of Huawei and Tencent Cloud. Recently, however, investors have been frustrated that the segment struggles to sustain its growth trajectory.</p> <p>That narrative is changing. In its fiscal 2026's first quarter (ended June 2025), Alibaba's cloud  soared 26% year over year to RMB 33.4 billion (approximately $4.7 billion), outpacing the overall company's like-for-like revenue growth of 10%. Management further highlighted that AI-related revenue surged at a triple-digit rate, marking the eighth consecutive quarter of triple-digit growth rates, and now accounts for 20% of cloud external revenue.</p> <p>These numbers suggest that Alibaba Cloud is no longer just a commodity provider of computing power but a value-added AI provider, opening up new ways to monetize its years of investments in enterprise-grade AI models, infrastructure, and applications.</p>  <h2>Why AI matters for Alibaba Cloud</h2> <p>AI workloads are far more compute-intensive than traditional cloud tasks, driving higher revenue per customer. Alibaba has invested heavily in its own AI large language model (LLM), Tongyi Qianwen, which powers customer service, office productivity, and e-commerce analytics.</p> <p>The company also supplies AI infrastructure to enterprises in finance, logistics, and manufacturing. As companies in these industries implement and scale AI in their operations, they will naturally lean on Alibaba to provide the underlying model and computing infrastructure.</p> <p>The result for Alibaba is better margins and stickier customers. The former comes from the pricing power and higher profitability of AI services, while the latter reflects the high switching costs once companies integrate AI into their workflows. This combination could finally transform Alibaba Cloud from just a scale story into a growth-plus-profit story.</p> <h2>Alibaba's competitive positioning</h2> <p>For Alibaba Cloud to sustain its long-term trajectory, it must continue to strengthen its competitive position. Bears will point to challenges: Huawei Cloud's rapid rise in China, <strong>Tencent</strong>'s strength in gaming and media, and the global dominance of AWS and <strong>Microsoft</strong> Azure. These are real headwinds. But they shouldn't overshadow Alibaba's strategic advantages:</p> <ul> <li><strong>Scale leadership in China:</strong> Alibaba remains the default provider for millions of domestic enterprises, especially those embedded in its digital ecosystem. Scale gives it cost efficiency and specialization, which in turn translates into attractive value for customers.</li> <li><strong>Open-source AI model adoption:</strong> Its large language model, Tongyi Qianwen, is already being used by overseas developers to build AI applications. This positions Alibaba to create an AI ecosystem that stretches beyond China's borders.</li> <li><strong>Synergies across its ecosystem:</strong> Alibaba owns a diversified portfolio of businesses, offering natural testbeds for its AI tools. From Cainiao Logistics to DingTalk, the company can deploy AI internally, refine solutions, and then commercialize them for external clients.</li> </ul> <p>These strengths mean Alibaba is not just chasing the AI trend -- it's embedding AI into the foundation of its business model.</p> <h2>What does it mean for investors?</h2> <p>Alibaba is far from risk-free. Its commerce business remains under pressure from competition in quick commerce, and China's regulatory landscape can change quickly. But the latest results highlight progress where it matters most: cloud computing, powered by AI.</p> <p>The cloud's 26% revenue surge, driven by triple-digit AI demand, signals that Alibaba is entering a new phase. For long-term investors, this could mark the moment when Alibaba evolves from a bruised e-commerce leader into a technology platform built for the AI era.</p> <p>If the company can continue scaling AI profitably, Alibaba may eventually regain its previous glory as a growth stock.</p>                                                                            </div>

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<p>Alibaba Group is experiencing a turnaround, with its cloud business, particularly AI services, emerging as a new growth engine. In Q1 of fiscal 2026, Alibaba Cloud revenue surged 26% year-over-year, driven by triple-digit growth in AI-related revenue, which now constitutes 20% of cloud revenue. Despite challenges from competitors like Huawei and Tencent, Alibaba's scale, open-source AI model adoption, and ecosystem synergies position it well for future growth. This shift could redefine investor perceptions, marking Alibaba's evolution into a technology platform for the AI era.</p>

- Alibaba Group has faced significant challenges, including regulatory issues and competition, but recent results indicate a potential turnaround.  
- The company's cloud segment, particularly its AI services, has shown impressive growth, with a 26% revenue increase and triple-digit growth in AI-related revenue.  
- This shift suggests that Alibaba is evolving from a traditional e-commerce leader into a technology platform focused on AI, which could enhance its long-term investment appeal.

Alibaba's AI-Driven Cloud Surge: How AI Revenue Became the Growth Engine