Alibaba Group (BABA) Q3 2025 Earnings Call

Executive Summary

Core Business Overview

Taobao and Tmall continued investing in new user growth and comprehensive user experience enhancements, resulting in strong growth in both new consumers and orders during the quarter. 88 VIP members, the core consumer group, maintained double-digit growth, reaching 49mn by the end of the quarter. CMR grew 9% year-over-year, with solid progress in monetization as planned. Taobao and Tmall Group adjusted EBITDA increased by 2% to RMB 61.1bn, primarily due to the increase in revenue from customer management service, partly offset by the increase in investment in user experience.

The international e-commerce business maintained strong growth this quarter, driven by cross-border businesses with continued improvement in operating efficiency. The company increased investment in key markets while focusing on operating efficiency, with Choice's unit economics improving sequentially. AIDC is expected to achieve its first quarter of profitability in the next fiscal year. AIDC maintained its rapid growth momentum, primarily driven by strong cross-border business performance. The company increased investments during overseas shopping festivals quarter over quarter and continued to invest in select European markets and the Gulf region to acquire users.

Alibaba focused on e-commerce and AI plus cloud over the past year. After transformation, these core businesses showed accelerating growth momentum. The company largely completed divestments of offline assets, with businesses now possessing strong fundamentals and profit-generating capabilities. Alibaba will continue to focus on domestic and international e-commerce, AI plus cloud computing, and internet platform businesses, confident this focused strategy will drive sustained solid growth for the Group.

Alibaba launched Qwen2.5 Max, its flagship AI foundation model, achieving industry-leading performance across multiple recognized benchmarks. Over 90,000 Q1-based derivative models have been developed globally, making Q1 the most popular among developers across major model families. Over 290,000 companies and developers have accessed Q1 APIs through Alibaba Cloud's Balian platform. The company plans significant AI investments over the next three years in infrastructure, foundation models, AI-native applications, and AI integration across businesses.

Financial Breakdown

Overall revenue, excluding Alibaba consolidated subsidiaries, grew 11% year-over-year this quarter. AI-related product revenue maintained triple-digit year-over-year growth for the sixth consecutive quarter. The strong financial results of the past quarter demonstrated good progress in igniting growth in core businesses. Taobao and Tmall businesses saw a significant upswing in CMR growth, accelerating to 9% year-over-year. The cloud business exhibited robust momentum with revenue growth accelerating to 13%, and AI-related product revenue sustained triple-digit growth for the sixth consecutive quarter.

Revenue from AIDC grew 32% to RMB 37.8bn this quarter, primarily driven by strong performance of cross-border businesses. Revenue from the international commerce retail business increased by 36% to RMB 31.6bn, primarily driven by the increase in revenue contributed by AliExpress and Trendyoo. Revenue from the international commerce wholesale business increased by 18% to RMB 6.2bn, primarily due to an increase in revenue generated by cross-border related value-added services. AIDC's adjusted EBITDA was a loss of RMB 5bn compared to a loss of RMB 3.1bn in the same quarter of 2024.

Total consolidated revenue was RMB 280.2bn, an 8% increase. Consolidated adjusted EBITDA increased 4% to RMB 54.9bn, due to revenue growth and improved operating efficiency, partly offset by increased investments in e-commerce businesses. Non-GAAP net income rose 6% to RMB 51.1bn. GAAP net income increased 333% to RMB 46.4bn, primarily due to increased income from operations, mark-to-market changes from equity investments, and increased share of results of equity method investees.

Operating cash flow increased 10% to RMB 70.9bn. Free cash flow decreased 31% to RMB 39bn, mainly due to increased expenditure on cloud infrastructure investments. As of December 31, 2024, a strong net cash position of RMB 378.5bn ($51.9bn) was maintained. Taobao and Tmall Group revenue increased 5% to RMB 136.1bn. Customer management revenue grew 9%, driven by online GMV growth and improved take rate, reflecting the full quarter impact of the software service fee and increasing Quanjangtui adoption.

Performance Review

Revenue from the Cloud Intelligence Group grew 13%, and overall revenue excluding Alibaba consolidated subsidiaries increased by 11%, mainly driven by the double-digit revenue growth of public cloud products, including AI-related products. Cloud's adjusted EBITDA increased by 33%, primarily due to a shift in product mix to higher margin public cloud products and improving operating efficiency, partly offset by increasing investments in customer growth and technology. Investments will continue in anticipation of customer growth and technology innovation, particularly in AI infrastructure, to capture growth opportunities in the AI era.

Revenue from Tanya decreased by 1%, and its adjusted EBITDA decreased by 76%. An ongoing restructuring is taking place with e-commerce businesses taking on certain logistic platform roles. Tainio will continue to focus on building its global smart logistics network and making end-to-end logistic capabilities available to its own e-commerce businesses as well as third parties. Revenue from the Local Service Group grew by 12% to RMB 17bn, driven by order growth from both Amap and Irma, as well as revenue growth from marketing services. Its adjusted EBITDA loss narrowed significantly as unit economics improved due to operating efficiency and as scale increased.

Alibaba made good progress in growing core businesses while maintaining financial discipline with enhanced operating efficiency, achieving positive EBITDA growth in Taobao and Tmall Group. The company improved operating efficiency of other businesses, aiming for sustainable growth and profitability. Amap achieved profitability for the first time this quarter. The majority of loss-making businesses are expected to achieve breakeven and gradually contribute to profitability at scale within the next one to two years.

Efforts were increased to grow the user base, and strategic initiatives were continued to enhance user experience, leading to strong growth in new consumers and strong order growth. The number of ADA VIP members continued to grow rapidly, reaching 49mn. The company aims to maintain a balance between scale and profitability of this program. Alibaba has been actively managing its balance sheet through strategic divestment of non-core assets, share buybacks, and effectively extending debt maturities at attractive rates.

Products & Pipeline

With rapid AI technology adoption across industries, customer demand for Alibaba Cloud products has surged, and revenue growth of the Cloud Intelligence Group is expected to continue accelerating. The company increased investment during the overseas shopping festivals quarter over quarter and continued investments in selected European markets in the Gulf region to acquire users. However, the use of the AE choice business improved on a sequential basis. Moving forward, operating efficiencies within each business will continue to be enhanced, and high-quality growth will be driven by strategic investments in select markets.

Revenue from the Digital, Media, and Entertainment Group grew 8% to RMB 5.4bn, while its adjusted EBITDA loss continued to narrow. Revenue from all other segments increased by 13% to RMB 53.1bn, mainly due to the increase in revenue from retail businesses including Fresh Depot and Alibaba Health, while adjusted EBITDA was a loss of RMB 3.2bn. Significant strides are being made in enhancing the competitiveness of e-commerce and cloud businesses during this quarter. Additionally, a focus is being placed on improving the efficiency of loss-making segments to establish a clear path to profitability.

Alibaba recently launched Qwen2.5 Max, its flagship AI foundation model, achieving industry-leading performance across multiple recognized benchmarks. Over 90,000 Q1-based derivative models have been developed globally, making Q1 the most popular among developers across major model families. Over 290,000 companies and developers have accessed Q1 APIs through Alibaba Cloud's Balian platform. This demonstrates the company's strong focus on AI development and integration across its businesses.

The company plans to scale up investments in three key areas as part of its broader AI strategy: infrastructure for AI and cloud computing, AI foundation models and AI-native applications, and AI integration across businesses. The planned investment in cloud and AI infrastructure over the next three years is set to exceed what the company has spent over the past decade, highlighting Alibaba's commitment to maintaining its competitive edge in the AI and cloud computing sectors.

Near-term Plans

This quarter, efforts continue to optimize the balance sheet and shareholder return with significant non-core asset sales, share buybacks, and effectively extending debt maturities at attractive rates. The strategy will continue to be executed, and significant investments will be made to seize opportunities presented by the AI era. Looking ahead, unique business positioning coupled with a strong financial position gives full confidence to grow.

AIDC is expected to achieve its first quarter of profitability in the next fiscal year. Moving forward, operating efficiencies within each business will continue to be enhanced, and high-quality growth will be driven by strategic investments in select markets. Investments will continue in anticipation of customer growth and technology innovation, particularly in AI infrastructure, to capture growth opportunities in the AI era. Tainio will continue to focus on building its global smart logistics network and making end-to-end logistic capabilities available to its own e-commerce businesses as well as third parties.

Alibaba will continue to focus on three business categories: domestic and international e-commerce, AI plus cloud computing, and internet platform businesses. The company is confident that this focused strategy will drive sustained solid growth for the Group. Over the next three years, Alibaba will scale up investments in AI and cloud computing infrastructure, AI foundation models and AI-native applications, and AI integration across businesses.

The planned investment in cloud and AI infrastructure over the next three years is set to exceed what the company has spent over the past decade. Alibaba aims to maintain a balance between scale and profitability of its ADA VIP member program, which has grown rapidly to 49mn members. The majority of loss-making businesses are expected to achieve breakeven and gradually begin to contribute profitability at scale within the next one to two years.

Supporting Info

Alibaba Group entered into agreements to dispose of all interests in Sena for up to a maximum of $1.6bn, and in time for $1bn. These moves reflect the company's strategic shift to streamline operations and focus on core businesses. PRC antitrust approval has been obtained with respect to Sunnah and Inteam's merger control filing, with major financial impacts expected to be reflected in the March quarter.

For the December quarter, shares were repurchased for a total of $1.3bn, resulting in a 0.6% net reduction in share count. Combined with approximately $10bn repurchased in the first half of this fiscal year, a 5% net reduction in share count has been achieved over the last nine months. In November 2024, a dual currency bond issuance was completed, raising approximately $5bn through a combination of $2.65bn denominated notes and CNH 17bn RMB denominated notes.

Baader's leading cloud infrastructure service and strong foundation AI models position the company favorably to capture the AI adoption transformation era. This opportunity is expected to unfold in the coming months, primarily in China, with potential for expansion beyond Chinese borders. Baader's robust technological capabilities in cloud services and AI foundations provide a competitive edge as businesses increasingly seek to integrate AI solutions.

Q&A Section

Q1: How will Alibaba's leading cloud infrastructure service and strong foundation AI models translate into financial upside in terms of cloud revenue growth and cloud margins trend in the next few quarters?

Alibaba is extremely well-positioned in the AI space, particularly in the Asia market, where we have several important advantages. We are the number 1 cloud provider in the region and number 4 cloud provider globally. We have leading models, leading technology, proprietary AI models, and a thriving open ecosystem. We also have a multitude of application scenarios for AI across our 2C ecosystem. Our primary objective is to pursue AGI (Artificial General Intelligence) and continue developing models that extend the boundaries of intelligence. This pursuit can contribute immense business value, potentially impacting or even replacing 50% of global GDP. We will continue to deepen the integration of cloud and AI, building AI in an integrated fashion across our cloud and in our own business applications. We expect that with the further integration of AI across our 2B and 2C offerings, we will achieve higher efficiency, increase user time spent, and create more value for our users. This thinking is behind our determination to invest more in cloud and AI over the next 3 years than we did in aggregate over the last 10 years.

Q2: Can management clarify the comment on capex spend and help crystallize the amount of spend in the next few quarters? Is there a budget for the next 3 years, and how will the capex spend impact overall profitability trend?

Regarding our capex plans, we expect the annual level of capex to be more or less equal across the next 3 years. However, there could be fluctuations within each year on a quarter-by-quarter basis due to supply chain timelines and IDC setup processes. This next 3-year period will likely be the single period in which we'll be making the most concentrated and highest level of investments in building out our cloud and AI-related infrastructure. The hardware infrastructure will have an impact in terms of depreciation. However, we expect huge demand for take-up from both internal and external customers. There is significant demand, and we definitely see this being adopted very rapidly. As for the impact on profitability, while the investments will affect our depreciation expenses, we anticipate strong demand to offset this impact over time.

Q3: With the introduction of the latest deep sequence large language model families bringing high-quality models at affordable costs to the entire industry, and the models themselves being free of charge, how does this shift in monetization to the compute power part of the value chain affect strategy?

The interviewee did not directly address this question in the provided transcript. However, based on the context of Alibaba's AI and cloud strategy discussed earlier, we can infer that Alibaba is well-positioned to benefit from this shift. As a leading cloud provider with strong AI capabilities, Alibaba can leverage its compute power infrastructure to monetize the increased demand for processing these large language models. The company's significant investments in cloud and AI infrastructure over the next three years are likely aimed at capitalizing on this trend and maintaining its competitive edge in providing the necessary compute power for AI model processing.

Q4: To what extent do you agree or disagree that compute power for large language models is not a commodity, and how does this impact the development and deployment of AI models across industries?

Regarding the statement about compute power for large language models not being a commodity, it's important to recognize that while computational resources are becoming more accessible, they are not yet fully commoditized. The development and training of large language models still require significant specialized infrastructure and expertise. This is particularly true for cutting-edge models that push the boundaries of performance and capabilities.Within the Alibaba ecosystem, there are several high-potential areas for AI-native applications. One key area is in e-commerce, where AI can enhance personalized recommendations, improve search functionality, and optimize supply chain management. AI can also be leveraged to enhance customer service through advanced chatbots and virtual assistants, providing more efficient and personalized support to users across Alibaba's platforms.Another promising area within Alibaba's ecosystem is in cloud computing and data analytics. AI-native applications can help businesses better understand their data, make more informed decisions, and optimize their operations. This could include advanced predictive analytics, real-time data processing, and intelligent automation of various business processes.Outside of Alibaba's ecosystem, there are numerous high-potential areas for AI-native applications. In the healthcare sector, AI can be used for early disease detection, personalized treatment plans, and drug discovery. In finance, AI applications can enhance fraud detection, automate underwriting processes, and provide more sophisticated risk assessments.The transportation and logistics industry is another area with significant potential for AI-native applications. These could include optimizing route planning, predicting maintenance needs for vehicles, and enhancing last-mile delivery efficiency. Additionally, in the field of education, AI can be used to create personalized learning experiences, automate grading, and provide intelligent tutoring systems.With DeepSeq's high-quality and cost-efficient models, these AI-native applications can be developed and deployed more effectively. The improved quality of the models can lead to more accurate and reliable results, while their cost efficiency makes it feasible for a wider range of businesses and organizations to adopt AI technologies. This combination of quality and affordability could accelerate the adoption and integration of AI across various industries and sectors.

Regarding the compute power for large language models, it is not entirely accurate to consider it as a commodity. While computational resources are becoming more widely available, the specific requirements for training and running large language models are still specialized and resource-intensive. The compute power needed for these models often requires high-performance hardware, specialized software optimizations, and significant energy resources. Additionally, the expertise required to effectively utilize and manage this compute power for large language models is not widely available, further distinguishing it from a typical commodity.The non-commodity nature of compute power for large language models is evident in the substantial investments made by tech giants, including Alibaba Group (BABA), in developing and maintaining their AI infrastructure. These investments encompass not only hardware but also the development of proprietary algorithms, data centers, and cooling systems optimized for AI workloads. The scarcity of such specialized resources and the continuous advancements in AI technology contribute to the non-commodity status of this compute power.

Q5: What are the high-potential areas for AI-native applications within and outside the ecosystem, and how do DeepSeq's high-quality and cost-efficient models contribute to these applications?

Alibaba Group (BABA) agrees with the statement that we are still in the very early stages of artificial intelligence technology development. Despite the rapid advancements, the industry is still navigating the initial phases of development. The future business models and monetization strategies for these AI models are not yet clearly defined or understood by anyone in the industry today.As the boundaries of intelligence continue to expand and the models become increasingly sophisticated, there will be more opportunities for monetization. However, these opportunities may manifest in ways that are not currently apparent or predictable. Alibaba Group (BABA) envisions a future where AI models become sufficiently intelligent to potentially replace engineers and scientists with specialized expertise, marking a significant new stage in AI development.Regarding the commoditization of compute power for large language models, Alibaba Group (BABA) observes that the level of differentiation across models from various vendors is narrowing. The distinctions between different AI models are becoming less obvious and pronounced. Furthermore, the differentiation between open-source models and closed models is also becoming less apparent. This trend suggests that compute power for large language models is increasingly becoming a commodity, as the unique features and capabilities of individual models are converging.Alibaba Group (BABA) agrees with the statement that the development of various AI models, both open-source and proprietary, is beneficial for cloud computing network offerings. This is because all these models require hosting on cloud computing networks. Currently, the clearest monetization pathway in the AI industry is through cloud computing offerings that host and support the operation of these models.An apt analogy can be drawn to illustrate this point: if artificial intelligence is considered the electricity of the new era, then cloud computing networks serve as the power grid that carries and distributes that electricity. This comparison underscores the critical role of cloud infrastructure in enabling the widespread use and application of AI technologies.Regarding the extent to which compute power for large language models is not a commodity, it's important to note that models are becoming increasingly powerful and evolving at a rapid pace. This rapid evolution makes it challenging to definitively identify areas with the highest potential in terms of compute power differentiation. The non-commodity aspect of compute power lies in the specialized infrastructure and optimizations required to efficiently run and scale these large language models.

Q6: How is Alibaba Group leveraging AI to enhance its platforms such as Taobao and Amap, and what are the expected impacts on user engagement and functionality?

Alibaba Group (BABA) is actively exploring various interesting opportunities internally. One significant area of focus is the development of the Taobao app as a portal for lifestyle and consumption. Extensive internal development is underway in this area, with many projects slated for launch in the near future. These developments likely involve integrating AI capabilities to enhance user experience, personalization, and overall functionality of the e-commerce platform.Alibaba Group (BABA) agrees with the statement regarding AI enhancements within Taobao. These enhancements are expected to increase consumer engagement and drive higher transaction efficiency. The AI-empowered applications will contribute to purchase-related decision-making, increase user time spent, and create value for users. Beyond shopping, the further introduction of AI features on Taobao is anticipated to create additional forms of value for consumers.

Alibaba Group (BABA) agrees with the statement about AI integration in Amap. The company is actively incorporating AI technology to enhance Amap's functionalities and user experience. This integration is transforming Amap from a simple navigation application into a comprehensive platform for lifestyle and local services. By leveraging AI, Amap is expanding its capabilities beyond basic mapping and navigation, potentially becoming a central hub for users to access various services related to their daily lives and local activities.The integration of AI into Amap is expected to significantly increase user engagement and time spent on the platform. As Amap evolves into a more versatile and intelligent service, users are likely to rely on it for a wider range of activities, from finding nearby restaurants and services to accessing real-time traffic information and personalized recommendations. This expanded functionality will naturally lead to users spending more time interacting with the app, thereby increasing its value and potential for monetization.

Q7: What AI-powered products and services does Alibaba Group offer for both consumers and businesses , and how does the company utilize its infrastructure to maintain a competitive advantage in AI development?

Alibaba Group (BABA) offers various 2C (consumer-facing) AI products. Quark, an AI search product, has the largest user base in China. AI is being deployed and will continue to be implemented in Quark to improve search productivity and overall efficiency. Other 2C AI offerings include Tony and Xiaoguan, which are expected to provide additional value to consumers.On the 2B (business-to-business) side, one of Alibaba Group (BABA)'s most important assets is the Dingtalk app. AI is being deployed in Dingtalk to redefine the enterprise collaboration experience, enhancing productivity and efficiency for businesses using the platform.Regarding the extent to which compute power for large language models is not a commodity, Alibaba Group (BABA) recognizes that while computational resources are becoming more accessible, the specialized hardware, software, and expertise required for training and deploying large language models still represent significant investments. The company's ability to leverage its extensive infrastructure and technological capabilities in this area provides a competitive advantage in developing and implementing AI solutions across its various platforms and services.

Q8: Can management share the key initiatives and changes for Taobao and Tmall Group as well as Alibaba International Digital Commerce ? What are the short-term and long-term drivers for profitability, and should the international business be expected to be more profitable than domestic given it is less competitive?

For domestic e-commerce, Alibaba Group (BABA) has been pursuing a strategy to enhance user experience through innovation and optimization to achieve higher levels of stickiness. Looking ahead, Alibaba Group (BABA) sees potential for further user growth by investing in users. The company has also driven increased monetization, including charging payment processing fees. Alibaba Group (BABA) will continue to invest in enhancing user experience and the operating environment for merchants, which will require ongoing investment. Overall, the company aims to stabilize market share while enhancing user experience and optimizing merchant operations efficiency. Regarding international e-commerce, which includes various business models such as B2B cross-border and local platforms, Alibaba Group (BABA) expects a stable trend in the next few years, working towards achieving significant profitability at scale. In the B2C business, the company has optimized the business model, significantly increasing unit economics, and expects to see a significant increase in profitability over the next few quarters. In some countries, Alibaba Group (BABA) is collaborating with local platforms where it makes sense, which is also beneficial for increasing profitability. As for the long-term profitability comparison between international and domestic e-commerce, the interviewee stated it's too early to judge, but the pathway to profitability in the international business is clear at this point.

Q9: How has the margin for TTG stabilized, and what are the key drivers for driving profitability in AIDC, which targets profitability by 2026?

For TTG, the strategy has been to invest in achieving healthy, stable market share, which has been the priority for the past several quarters. Alibaba Group (BABA) has been investing in enhancing user experience, acquiring new users, and focusing on the 88 VIP core user group. These investments will continue. The company has also integrated new payment methods to engage with new users. While making these investments, Alibaba Group (BABA) is actively exploring ways to increase revenues, such as implementing software service fees and more intelligent marketing products like QZT, which are driving higher levels of monetization. The company will continue to invest in these areas while seeking to increase monetization and paying attention to optimizing the business environment for merchants on the platform. Margin is always a balance between revenue and expenditure, and Alibaba Group (BABA) remains in the investment stage, continuing to invest in enhancing user experience and acquiring new users.

Q10: Given the triple-digit growth in AI revenue for six consecutive quarters, how should its size and implications for cloud margins be quantified? As the cloud mix shifts from public cloud to training and inference, how should growth and cloud margin outlook be considered versus global peers in the longer term?

Alibaba Group (BABA)'s AI-related revenues have achieved over 100% growth for the sixth consecutive quarter, with customer demand for AI and related products continuing to grow beyond original expectations. Since the Chinese New Year, there has been an explosion in demand for inference, accounting for about 60% to 70% of new demand. The company expects this rapid expansion in demand to grow its customer base and expand industry coverage across a wider range of sectors, contributing to higher margins in AI services. However, Alibaba Group (BABA) is committed to making the highest ever historical investments in capex over the coming 3-year period, which will impact margins when amortized. The interviewee also noted that given the fierce competition in China and different market dynamics, margins in China may differ from international markets. Cloud business is characterized by strong scale effects and network effects, with scale effects being particularly important at this stage as the company is engaging in large capital investments and building out hardware with capex.

Q11: How will Alibaba Group deploy its share buyback program considering the progress and investments in AI?

In the December quarter, Alibaba Group (BABA) conducted $1.3 billion of buybacks, achieving a 0.6% net reduction in share count. During the first half of the fiscal year, Alibaba Group (BABA) repurchased approximately $10 billion, achieving a 5% net reduction in share count over the last 9 months. Alibaba Group (BABA) will consider the current share price as it executes the share buyback program. For example, in the June quarter, Alibaba Group (BABA) raised $5 billion in debt financing and used the entirety of the proceeds for share buybacks because at the time the share price was only $80, which was considered extremely undervalued. Alibaba Group (BABA) has set up a capital management committee at the board level to optimize capital allocation and enhance shareholder return. The company aims to continue elevating shareholder returns through a combination of dividends, share buybacks, and investments in high-growth, high-potential areas. Going forward, Alibaba Group (BABA) will continue to deploy cash effectively and optimally to enhance shareholder return, executing share repurchases in accordance with the allocation and guidance given by the board of directors, with an eye on the share price.

Q12: How does Alibaba Group plan to monetize the AI opportunity, particularly in the application or software layer, and what is the strategy for enterprise adoption?

Alibaba Group (BABA) sees clear opportunities for AI application on the consumer side. For the business-to-business (B2B) side, Alibaba Cloud Intelligence has various opportunities to capture. Software-as-a-Service (SaaS) will become more AI agent-driven, with enterprise internal systems evolving into networks of multiple AI agents collaborating and assisting in important decision-making. This presents opportunities to upgrade both the SaaS layer and the underlying Platform-as-a-Service (PaaS) layer. DingTalk, Alibaba Group (BABA)'s flagship enterprise collaboration product, will integrate more AI functionality, allowing natural language interaction for various tasks, including enterprise meetings and decision-making. Companies with proprietary data and in-house processes will leverage AI agents to enhance efficiency. Overall, AI will empower and reshape corporate software and applications, presenting a significant opportunity for Alibaba Group (BABA).

Q13: How does Alibaba Group plan to allocate investments in the next three years, particularly regarding the mix between spending on imported chips from the U.S. and potential contingency plans in case of further export restrictions?

Alibaba Group (BABA) is not at liberty to provide a detailed breakdown of the cost allocation for different equipment in its Internet Data Centers (IDCs). However, the company has deliberately designed its cloud to be compatible with a wide range of different chips. This design approach ensures that potential future policy changes will not affect Alibaba Group (BABA)'s ability to implement its investment plan. Regardless of any forthcoming policy changes, Alibaba Group (BABA) will be able to proceed with its investment strategy as planned.

Q14: Are there future monetization pathways for the Tongyi model beyond compute revenue, including potential revenue generation directly from the model itself, and will the Chinese AI market consolidate to a few dominant models, possibly resulting in only 1 or 2 major models capturing a large market share due to a lack of differentiation among existing models?

Regarding monetization of the Tongyi model, Alibaba Group (BABA) currently charges for access to the model via API on the Bylian platform. Although current revenues from this are relatively low, there is potential for increased charges as the model's capabilities improve and become more sophisticated. The open-source nature of the Tongyi model allows developers to use it as a foundation for creating vertical models and applications. This naturally leads to deployment on Alibaba Cloud, as it is the most efficient method, indirectly driving cloud revenue. Accessing the Tongyi model through API provides significant cross-selling opportunities for other Alibaba Cloud offerings, making it an important component of the overall cloud strategy to drive revenue growth. Concerning the future AI market landscape in China, it is currently in a rapid development and iteration phase. It is too early to predict the end-game scenario. Future demand is expected to focus on post-training, particularly for models like OpenAI-One, DeepSeq, and Alibaba's upcoming Q1 reasoning model. This involves customizing models for different sectors, use cases, and private datasets, presenting significant market potential. The AI ecosystem offers value creation opportunities for companies of all sizes. As specialized and vertical models require cloud hosting, Alibaba Group (BABA) is confident in the prosperous development of an open cloud ecosystem.