Alibaba Bets Big on AI with Investments in Chinese Start-ups

Alibaba invests in Chinese AI start-ups, including Moonshot AI, offering cloud computing credits instead of cash. The company's strategy aims to reinvent itself as an AI innovator amidst rising competition and US chip restrictions.

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Aqsa Younas Rana
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Alibaba Bets Big on AI with Investments in Chinese Start-ups

Alibaba Bets Big on AI with Investments in Chinese Start-ups

Alibaba, the Chinese e-commerce giant, is making significant investments in Chinese artificial intelligence (AI) start-ups, including Moonshot, Zhipu, MiniMax, and 01.ai. The company's strategy involves replicating the success of Microsoft's investment in OpenAI by offering cloud computing credits to these start-ups instead of conventional cash-for-equity funding, leveraging its vast cloud computing infrastructure.

Why this matters: Alibaba's investment in AI start-ups has significant implications for the global technology landscape, as it positions China as a major player in the AI race. This development could also lead to a shift in the balance of power in the tech industry, with potential consequences for innovation, job creation, and national security.

In February, Alibaba led a $1 billion fundraising round in Moonshot AI, valuing the start-up at $2.5 billion. The company invested $800 million in Moonshot AI, with nearly half coming in the form of cloud computing credits. Alibaba's chief executive, Eddie Yongming Wu, has personally overseen investments in the four leading AI start-ups as the company seeks to reinvent itself as an AI innovator amidst rising competition and US chip restrictions.

Alibaba's cloud business has been averaging single-digit quarterly growth since 2022, following Beijing's crackdown on large internet companies. The company cancelled its ambitious restructuring plan, which included an initial public offering of its cloud business, citing the impact of US chip restrictions. Wu took direct control of the cloud business, pledging to invest in AI and putting the business at the center of his strategy to boost growth.

A Chinese AI scientist noted, "Providing compute is actually more valuable than cash." Alibaba's investment structure echoes those of Microsoft and Amazon, but with a key difference: the money is never transferred to the Chinese start-ups, instead being held in an escrow account that Alibaba can count as incoming revenue. A manager at an Alibaba-backed AI start-up stated, "If you want to invest in China AI, just buy Alibaba stock. It's a China AI ETF."

Alibaba's cloud computing infrastructure is particularly valuable in China, where cloud resources are scarce due to US restrictions on the export of advanced chips. The company has become a top investor in Chinese AI start-ups, seeking to monetize its hoard of AI chips, including high-end Nvidia graphics processing units.

Alibaba's significant investments in Chinese AI start-ups, led by Moonshot AI's $1 billion fundraising round, position the company as a key player in the rapidly evolving AI landscape. As Alibaba navigates rising competition and US chip restrictions, its strategy of offering cloud computing credits to AI start-ups showcases its commitment to reinventing itself as an AI innovator.

Key Takeaways

  • Alibaba invests in Chinese AI start-ups, including Moonshot, Zhipu, MiniMax, and 01.ai.
  • Investments are made in the form of cloud computing credits, not cash-for-equity funding.
  • Alibaba's strategy aims to replicate Microsoft's success with OpenAI.
  • Investments position China as a major player in the AI race, with implications for tech industry balance.
  • Alibaba's cloud computing infrastructure is valuable in China due to US chip export restrictions.