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Diving certificate:
- Alibaba expects AI products to account for more than half of its cloud segment’s growth this year, CEO Eddie Wu said Thursday during a conference call on second-quarter 2024 earnings. “Any company that is digitized and relies on digitization needs to invest – it needs to invest in AI,” he said.
- The company reported 6% year-over-year cloud revenue growth in the three-month period ended June 3, following a 3% increase in the previous two quarters and 4% growth in the second quarter of 2023.
- Despite the increase in revenue, Alibaba fell to fourth place in the public cloud infrastructure market last year, lagging behind Google for the first time since Gartner began tracking the segment.
Diving insight:
Alibaba’s problems with the cloud stand in stark contrast to those of its three larger competitors, which have achieved double-digit revenue growth over the past two years despite economic turmoil.
The cloud problems weakened the company’s position in the global market, where AWS held a crucial 39% share in 2023, followed by Microsoft with 23% and Google with just over 8%. According to Gartner, Alibaba’s share was only 7.9%.
The China-based e-retailer took action last year, setting up its own cloud division in March as part of a broader corporate restructuring – just three months before Wu was promoted to his current role.
To boost its cloud business, the company cut prices for several key cloud services earlier this year. Now Alibaba is investing in AI infrastructure to generate additional momentum.
“Through intensive investments in research and development, we aim to maintain profitable growth while establishing ourselves as a leading provider of cloud services,” Wu said on Thursday.
Alibaba is following the example of its hyperscale competitors and focusing its infrastructure investments on AI-optimized chip technologies, especially graphics processors.
“Looking at the industry as a whole, demand for CPU-based traditional cloud computing is relatively limited, with most of the growth currently focused on GPU-based AI product development,” Wu said.
There is plenty of room for Alibaba to expand its cloud business, although not its market share.
According to IDC, global cloud spending is expected to exceed $800 billion this year, growing at a 20% annual rate. The company expects the market size to double by 2028, partly due to the increasing use of AI technologies.
According to Wu, Alibaba is already feeling the effects.
“We are certainly seeing from our own cloud customers that their AI budgets are higher this year, significantly higher than last year,” Wu said.
