How Alibaba Is Using AI to Reshape Its Ecommerce Empire

Chinese e-commerce company Alibaba reports a quarterly revenue that surpasses analysts' estimates.

Alibaba's performance can be linked to its focus on fast deliveries and a large, ongoing investment in its AI infrastructure. This strategy comes as it also diversifies into different markets to sustain its growth.

Alibaba reports a second-quarter revenue of 247.80bnyuan (US$35bn), beating the estimates of 242.65bn yuan (US$34.3bn).

However, it misses adjusted profit estimates of 5.49 yuan (US$0.78) per American Depository Share, reporting 4.36 yuan (US$0.62). Following the release of its quarterly review, Alibaba's US-listed shares rose by 2%.

Strategic investments in AI infrastructure

To compete in the market, Alibaba is investing heavily in AI.

Players in China's 'quick commerce' sector are spending billions on their logistics infrastructure to reduce delivery times and increase market share. Earlier this year, Alibaba noted a planned expense of 380 billion yuan (US$53.7bn) over three years for AI and cloud infrastructure.

This figure may increase to meet the needs of its customers and address potential supply chain issues. According to Eddie Wu, Alibaba Group CEO, Alibaba will continue to invest in this area.

"We will be investing in AI infrastructure aggressively; the 380 billion yuan investment we previously mentioned might be on the small side given the customer demand," says Eddie.

This heavy investment contributes to a 53% fall in Alibaba's net profit to 20.61 billion yuan (US$2.9bn), but some analysts believe these expenditures could evolve into long-term advantages for the retailer.

Enhancing logistics with quick commerce

Alibaba offers AI-powered B2B sourcing solutions that cover end-to-end operations, supporting businesses from product search and online order placement to payment logistics and after-sales support. Through its platform, businesses can streamline ordering and gain transparency in managing suppliers.

The financial results are largely a result of its one-hour delivery options, a key feature of the growing 'quick commerce' sector.

Its instant retail business helps to improve unit economics. Alibaba reports its cost per order has halved since the summer.

While heavy discounting and subsidies from Alibaba and its competitors raise investor concerns about cash burn, Alibaba expresses confidence in its profit growth.

A change towards consumer-focused AI

Historically, Alibaba lags in consumer AI markets due to its focus on enterprise clients.

Alibaba is now changing its focus towards a more consumer-facing model, which is helping to grow its profit. This expansion into the consumer AI market is highlighted by the launch of a free app that, according to reports, gained more than 10 million downloads in its first week.

This move places Alibaba in the middle of a price war in China's domestic AI market, which is resulting in rivals slashing prices and developing new solutions to compete.

As part of its diversification strategy, Alibaba has also developed new consumer products like its AI glasses. This change to consumer operations is already showing a steady growth in that sector.