Alibaba and Tencent under scrutiny: proving AI bets are profitable

Chinese technology giants Alibaba and Tencent have entered the quarterly earnings season under mounting investor pressure to demonstrate that the billions of dollars spent developing artificial intelligence are generating real profits.

Large-Scale Investments Without Visible Returns

Both companies have aggressively invested in developing their own large language models and AI services over the past two years. Alibaba created and improved Qwen, while Tencent developed Hunyuan. Capital expenditures on AI infrastructure, including data centers, research teams, and computing resources, have amounted to hundreds of millions of dollars annually.

Financial analysts track each quarter whether spending is growing faster than revenue from these investments.

• Building and modernizing cloud data centers for model training and deployment
• Massive hiring of thousands of AI researchers and engineers with competitive salaries
• Advertising and promoting proprietary models amid ChatGPT's dominance
• Integrating AI capabilities into existing products (cloud, e-commerce, social networks)

Despite the scale of investments, direct monetization of these projects remains unclear. The primary revenue of both companies still comes from cloud services and e-commerce — businesses that existed long before the AI boom.

Investors Demand Concrete Numbers

The problem is simple: expenses are growing, but monetization is stagnating. Chinese investors have begun openly raising questions at shareholder meetings: when will AI services start generating tangible revenue comparable to the investment volumes in their development?

"We see enormous capital expenditures, but the monetization strategy

remains unclear," note analysts at conferences.

Analysts from Goldman Sachs and Morgan Stanley state in their reports that Chinese companies are spending on AI almost as much as American companies (relative to their size), but without a clear strategy for capital returns. Investors compare the situation to the early era of cloud computing, when companies invested massive sums in infrastructure but took years to recoup investments. However, for AI, the distance between investment and results is much shorter, and the cost of error is higher — the market is developing rapidly, and falling behind by a few quarters could mean losing competitive advantage to OpenAI and Google.

What Lies Ahead

In upcoming quarterly reports, Alibaba and Tencent must show concrete data on AI monetization. The companies are banking on revenue growth from several directions:

• API services for corporate clients through cloud platforms
• Embedded AI in existing products (search, recommendations, chat)
• Licensing models and foundational AI services to third parties
• Sales of AI tools and SaaS solutions for SMEs and enterprises

If quarterly reports disappoint, investors may demand a freeze on new AI investments or lower the company stock valuations. The market could interpret such a result as a signal that the "catch up with OpenAI" strategy is ineffective in its current form.

What This Means

The era of "invest in the future, report later" is ending. Even in China, where the state actively supports technology bets, private investors are demanding rationality and transparency. Alibaba and Tencent face a choice: either prove real AI profitability in upcoming quarterly reports, or slow investments and refocus on monetizing existing developments. For the technology sector as a whole, this means that the generous days of pure experimentation are ending — investors are now demanding not talk about future leadership, but concrete plans for capital returns.