Alibaba and Tencent's heavy bets on AI are gaining market recognition. On May 13, Alibaba and Tencent released their latest quarterly earnings reports on the same day. While revenue for both companies was slightly below market expectations, their U.S.-listed shares surged overnight: Alibaba's U.S. stock rose 8.3%, and Tencent Holdings' ADR climbed over 5%. The market is buying not current profits, but the prospects of AI commercialization. Alibaba CEO Eddie Wu stated on the earnings call that the annualized recurring revenue (ARR) for AI models and application services will exceed 10 billion yuan in June and triple to surpass 30 billion yuan by year-end. This statement directly boosted investor confidence. For Tencent, despite overall revenue slightly missing expectations, the resilience of its advertising and gaming businesses, coupled with management's first-ever quantitative disclosure of AI investments, also gained market approval. AI monetization has begun for both companies. Following the reports, JPMorgan issued a quick review, maintaining "Overweight" ratings on both Alibaba and Tencent, with a target price of $200 for Alibaba's U.S. stock and HK$690 for Tencent's Hong Kong stock.
Alibaba: Cloud and AI Strength, Commercialization Accelerating Alibaba's earnings report may not have been stunning in terms of main revenue and profit figures. For the quarter ending March 31, 2026, Alibaba's revenue was 243.38 billion yuan, up 3% year-on-year, below the market expectation of 246.5 billion yuan. Excluding the impact of disposed businesses like Sun Art Retail and Intime, revenue grew 11% year-on-year on a comparable basis. Non-GAAP net profit was 86 million yuan, while the market consensus was 14.3 billion yuan. JPMorgan noted this figure would lead to a "significant adjustment" to market profit expectations for fiscal 2027.
Why did profits decline? The core reason is concentrated investments in AI and instant retail. The adjusted EBITA loss for the "All other" segment (encompassing apps like Tongyi Qianwen and AI infrastructure) widened from 9.8 billion yuan last quarter to 21.2 billion yuan. According to All-Weather Technology, JPMorgan analysts pointed out that Alibaba essentially reinvested over 90% of its quarterly China e-commerce profits into user acquisition for Tongyi Qianwen and AI promotion, "with this spending pace expected to continue into fiscal 2027." However, impressive cloud business data gave the market reason for optimism. In the first quarter, Alibaba Cloud revenue reached 41.626 billion yuan, up 38% year-on-year, with external customer revenue growth accelerating to 40%, the fastest pace in nine quarters. AI-related product revenue was 8.971 billion yuan, marking the eleventh consecutive quarter of triple-digit year-on-year growth, with ARR exceeding 35.8 billion yuan. Cloud business adjusted EBITA grew 57% year-on-year to 3.796 billion yuan, with the margin rising 1.1 percentage points year-on-year to 9.1%. Alibaba is seizing a "huge opportunity," Wu says: Data center scale to grow tenfold Eddie Wu stated on the call: "AI is driving a full business upgrade for Alibaba Cloud, with growth momentum shifting entirely from traditional compute and storage to models, computing power, and Agent services." He also revealed that future capital expenditure will exceed the originally planned 380 billion yuan, and future data center scale will achieve "over tenfold growth" compared to 2022, with "not a single GPU card idle in the servers." Wu provided clearer commercialization targets: AI model and application service ARR is expected to exceed 10 billion yuan in the June quarter and surpass 30 billion yuan by year-end. He also stated that AI-related product revenue will account for over 50% of cloud revenue within the next year, becoming the main engine for cloud revenue growth. Alibaba CFO Toby Xu said in the earnings statement: "We are confident in our business prospects and will continue to invest in AI+Cloud to strengthen our competitive advantage." Rumors suggest Alibaba also plans to list its chip unit, T-Head, separately to capitalize on strong investor interest in domestic chips. T-Head's self-developed GPUs have achieved mass production, with over 60% of computing power serving external commercial customers. Following the report, Citigroup analysts raised their target price for Alibaba's U.S. stock, writing: "While AI technology investments are dragging on profits, management indicated this is an active strategic choice aimed at capturing a huge market opportunity."
Tencent: First Quantitative Disclosure of AI Spending, Ad Revenue Growth Accelerates to 20%, AI Monetization Underway Tencent's Q1 revenue was 196.5 billion yuan, up 9% year-on-year, slightly below the market expectation of 199.4 billion yuan. However, net profit grew 21% year-on-year to 58.1 billion yuan, exceeding expectations. More noteworthy is a set of comparative data proactively disclosed by management: reported non-IFRS operating profit was 75.6 billion yuan, up 9% year-on-year; excluding the investment impact of new AI products (Yuanbao, Hy, CodeBuddy, WorkBuddy, and QClaw), this figure would reach 84.4 billion yuan, a 17% year-on-year increase. This is Tencent's first quantitative disclosure of AI investment. JPMorgan offered a clear interpretation: Through this disclosure, management has turned "the mainstream bearish narrative on AI dilution from a storytelling issue into a sizable, auditable P&L item." In other words, the cost of AI is now quantifiable, no longer a vague concern. The firm also noted that the underlying health of Tencent's core businesses is better than the overall data suggests, and AI investments are "disciplined and self-funded" — free cash flow this quarter was 56.7 billion yuan, easily covering 37 billion yuan in capital expenditure and 7.9 billion yuan in share buybacks, with total net cash increasing sequentially to 146.9 billion yuan.
The advertising business was the brightest spot this quarter. Marketing services revenue grew 20% year-on-year to 38.2 billion yuan, accelerating from 17% growth last quarter. Bloomberg Intelligence analyst Robert Lea wrote: "Lower-than-expected operating expenses offset softness in game sales. AI-powered targeting drove full-year advertising revenue growth of 19.8%, a fairly impressive achievement for a company of this scale." Citigroup stated that the company's 20% marketing services revenue growth exceeded expectations, and business services revenue grew 20% year-on-year, primarily driven by domestic and international cloud demand and AI-related services. In gaming, domestic game revenue grew 6% year-on-year, a seemingly moderate pace, but management attributed this mainly to timing differences in the Spring Festival holiday, with actual gross billings still growing at a double-digit rate year-on-year. "Honor of Kings," "Peacekeeper Elite," and "Delta Force" all set new quarterly gross billing records. International game revenue grew 13% year-on-year to 18.8 billion yuan. Regarding capital expenditure, Tencent's capex this quarter was 31.9 billion yuan, up 16% year-on-year and about 63% sequentially, primarily for AI infrastructure construction. Net cash at quarter-end increased by nearly 40 billion yuan sequentially to 146.9 billion yuan. On AI product progress, Tencent's reorganized AI team released the preview version of the Hunyuan 3 large language model at the end of the quarter, which became one of the most-used models by token consumption on the OpenRouter platform starting April 28. Management stated that internal token calls for Hunyuan 3 increased tenfold compared to the previous generation, and it has been integrated into 131 products. The efficiency AI agent WorkBuddy's daily active user count ranks high among similar domestic services. On May 13, at Tencent's annual general meeting, Chairman and CEO Pony Ma candidly discussed the company's twists and turns in the AI field, using a humorous analogy to outline the current situation: on board the ship, but not yet sitting comfortably. He said: "A year ago, we thought we had boarded the ship, but later found it was leaking. Now we feel we are standing on it but still can't sit down. We hope the ship can speed up a bit."
Wall Street's View: Polarized Opinions, Different Emphases JPMorgan's assessment of the two companies is logically clear but emphasizes different aspects. For Alibaba, analyst Yao Cheng's team stated the quarterly results "consolidated rather than dismantled" previous judgments — external cloud revenue growth accelerating to 40%, AI revenue reaching 9 billion yuan, and margins rising 110 basis points year-on-year are positive signals. Analysts expect a significant downward revision in market consensus profit expectations for Alibaba's fiscal 2027 and predicted the stock would react negatively to the earnings — but the stock actually surged 8%, indicating the market's weighting of AI commercialization prospects now exceeds short-term profits. For Tencent, analysts said they have "become more constructive." The research report believes Tencent's core engines (WeChat ecosystem, advertising, and gaming) remain resilient, and the AI narrative will have a greater impact on the stock's direction than earnings upgrades. Currently, the "AI weighting" in Tencent's stock price is relatively low; if clear execution and product-market fit can be demonstrated in 2026, it could create upside potential. Regarding Wall Street ratings, JPMorgan maintains an "Overweight" rating on Alibaba's U.S. stock with a $200 target price and an "Overweight" on Tencent with a HK$690 target price. Citigroup maintains a "Buy" on Alibaba's U.S. stock, raising the target price to $205, and a "Buy" on Tencent with a HK$783 target price.
Common Pressure: AI Spending is Easy, Monetization is Hard Market analysis suggests both companies' earnings reports reveal a shared reality: China's largest tech companies are striving to turn AI investments into new revenue streams, despite having invested tens of billions of dollars in data centers, research, and talent. Alibaba has committed to investing approximately 380 billion yuan (about $56 billion) in AI over the next three years, one of the largest commitments among Chinese tech companies. Tencent President Martin Lau previously stated that the 2026 investment plan for new AI products will be at least double the 18 billion yuan planned for 2025. Simultaneously, both companies face external competitive pressure in their core businesses. Alibaba is engaged in a war of attrition with Meituan and JD.com in the instant retail space, where subsidies and discounts are eroding margins; Tencent continues to compete with ByteDance for user time, although its advertising business remains strong for now. At the AI model level, both companies face competition from pure-play AI firms like Moonshot and MiniMax — whose valuations have soared significantly since going public in January this year, diverting some investor attention away from traditional internet giants. All-Weather Technology wrote that Tencent's Hunyuan 3 preview model quickly became the most-used model by volume on the OpenRouter platform after launch, with internal token calls increasing tenfold compared to the previous generation, integrated into 131 products. Alibaba plans to list its chip manufacturing subsidiary, T-Head, separately to capture strong investor interest in Chinese domestic chips replacing Nvidia — T-Head's self-developed GPUs have achieved scaled mass production, with over 60% of computing power serving external commercial customers. The market's judgment is: sacrificing short-term profits buys a ticket to the AI era. As for how much that ticket is ultimately worth, the answer is still on the way.
