Dive Brief:
- Alibaba expects AI products to drive more than half of its cloud segment growth this year, CEO Eddie Wu said Thursday, during a Q2 2024 earnings call. “Any enterprise that is digitalized and relies on digitalization must be investing — it has to be investing in AI,” he said.
- The company saw cloud revenue growth accelerate to 6% year over year during the three-month period ending June 3, up from a 3% increase the previous two quarters and 4% growth in Q2 2023.
- Despite the uptick in revenues, Alibaba dropped to fourth in public cloud infrastructure market share last year, falling behind Google for the first time since Gartner began tracking the segment.
Dive Insight:
Alibaba’s cloud struggles stand in stark contrast to its three bigger rivals, which sustained double-digit revenue growth through economic turbulence the last two years.
Cloud woes diminished the company’s position in the global market, where AWS held a decisive 39% share in 2023, followed by Microsoft at 23% and Google at just over 8%. Alibaba’s share was just 7.9%, according to Gartner.
The China-based online retailer took remediating action last year, standing up a dedicated cloud division as part of a broader business reorganization in March — just three months before elevating Wu to his current role.
The company cut prices on several core cloud services earlier this year in an attempt to reinvigorate its cloud business. Now, Alibaba is leaning on investments in AI infrastructure to create additional momentum.
“Through intensive R&D investment, we aim to sustain profitable growth while establishing ourselves as a leading cloud service provider,” Wu said Thursday.
Following the lead of its hyperscale competitors, Alibaba is focusing its infrastructure investments on AI-optimized chip technologies, specifically graphics processing units.
“If you look at the industry as a whole, demand for CPU-based traditional cloud computing is relatively limited, where most of the growth is now focused on GPU-based AI product development,” Wu said.
There’s plenty of room for Alibaba to expand its cloud business, if not its market share.
Global cloud spending is expected to surpass $800 billion this year, growing 20% year over year, according to IDC. The firm expects the market size to double by 2028, driven in part by growing use of AI technologies.
Alibaba is already feeling the impact, according to Wu.
“What we see certainly among our own cloud customers is that their AI budgets for this year are higher, significantly higher than what they were last year,” Wu said.
