AI is the newest battlefield for tech companies and after launching its Tongyi Qianwen chatbot, Alibaba has now launched Tongyi Wanxiang a generative AI tool to generate images from text.
There are already such offerings from other companies including DALL-E from OpenAI. OpenAI’s ChatGPT is among the most well-known AI tool and it became the fastest platform to reach 200 million users. OpenAI has also launched ChatGPT’s app in several countries.
Chinese companies are also making strides in generative AI and in March Baidu launched the Ernie chatbot.
Alibaba launched a generative AI tool
With the Tongyi Wanxiang tool, Alibaba has further enhanced its AI offerings. Jingren Zhou, CTO of Alibaba Cloud Intelligence said, “With the release of Tongyi Wanxiang, high-quality generative AI imagery will become more accessible, facilitating the development of innovative AI art and creative expressions for businesses across a wide range of sectors, including e-commerce, gaming, design and advertising.”
Notably, Alibaba sees AI as a key growth driver and has clubbed the business with its cloud segment which is led by Daniel Zhang who is also currently the CEO of Alibaba Holdings.
Alibaba has reorganized its business
In March, Alibaba announced a business reorganization and said that it would become a holding company and would split the business into six units. These are The Taobao Tmall Commerce Group, Cainiao Smart Logistics, Local Services Group, Global Digital Commerce Group, Cloud Intelligence Group, and Digital Media and Entertainment Group.
Alibaba said that the move would help it unlock stockholder value. In his remarks, BABA CEO Daniel Zhang said, “This transformation will empower all our businesses to become more agile, enhance decision-making, and enable faster responses to market changes.”
Zhang to step down as Alibaba CEO
Back then the company said that Zhang would continue to be the CEO of Cloud Group as well as the holding company.
However, last month it announced that Zhang would step down as Alibaba Holdings’ CEO and chairman in September. Eddie Yongming Wu who’s currently the Chairman of Taobao and Tmall Group would become the CEO after the transition.
The company has also split the role of chairman from CEO and Joseph C. Tsai, who’s currently Executive Vice Chairman of Alibaba Holdings would become the chairman after Zhang.
All said Zhang heading the AI business signifies its importance for the company. There is an apparent AI war going on between the US and China which is only adding fuel to the ongoing tech war.
The US has banned the exports of several high-end chips to China in what looks like a move to slow down the country’s AI progress.
Nvidia gets a fifth of its revenues from China but the company managed to circumvent the ban by selling alternate chips.
The US is reportedly considering imposing additional restrictions on chip exports to China which could hurt US companies like Nvidia and AMD.
Nvidia is among the beneficiaries of AI pivot
Nvidia reported revenues of $7.19 billion in the fiscal first quarter of 2024– well ahead of the $6.52 billion that analysts were expecting. The adjusted EPS of $1.09 was also higher than the 99 cents that analysts were expecting.
Importantly, it guided for revenues of $11 billion in the current quarter which smashed the consensus estimate of $7.15 billion.
The AI segment helped Nvidia post better-than-expected earnings. The company’s CEO Jensen Huang said “The computer industry is going through two simultaneous transitions — accelerated computing and generative AI.”
He is bullish on the company’s AI business and said, “A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.”
Nvidia became a trillion-dollar company
The company’s CFO Colette Kress also echoed similar views and said, “Generative AI is driving exponential growth in compute requirements and a fast transition to NVIDIA accelerated computing, which is the most versatile, most energy-efficient, and the lowest TCO approach to train and deploy AI.”
She added, “Generative AI drove significant upside in demand for our products, creating opportunities and broad-based global growth across our markets.”
Nvidia joined the trillion-dollar market cap club amid euphoria towards its AI chip business. The stock has more than tripled this year amid optimism over the demand for its AI chips.
Analysts are bullish on Alibaba’s stock
Coming back to Alibaba, Wall Street analysts are mostly positive on the stock after the reorganization and Jefferies believes that it is trading at a “meaningful discount.” Notably, Alibaba’s valuation discount with global tech peers has widened over the last couple of years as the company’s valuation multiples took a beating amid the tech crackdown.
Tim Seymour, founder, and chief investment officer of Seymour Asset Management is also constructive on Alibaba’s reorganization and said, “There’s always been a lot of value here. In fact, you get Ant for free when you invest in this company. This is great news to me. This is a wait-and-see moment.”
China signals an end to the tech crackdown
While China became almost “uninvestable” for many global investors after the tech crackdown, fund flows into the world’s second-largest economy have improved in 2023.
China has taken several decisions which show that the country is now warming up to the tech sector. It allowed the downloads of Didi apps, approved Ant Financial’s request to raise capital, and also announced overseas listing rules for domestic companies.
Yesterday, the country imposed a nearly $1 billion fine on Alibaba’s affiliate company Ant Financial.
The fine signaled an end to Ant’s regulatory troubles and is yet another sign that the country is looking to end the tech crackdown amid a slowing economy.
China’s economic growth has come down
China was expected to lead global economic growth this year after it relaxed COVID-19 restrictions last year. However, after the initial rebound, China’s economy is losing steam leaving brokerages scrambling to lower the country’s growth forecast.
Goldman Sachs became the latest brokerage to lower China’s 2023 GDP growth forecast from 6% to 5.4%.
Among other brokerages, Bank of America has made the steepest cut to China’s GDP projections and lowered its forecast from 6.3% to 5.7%. Standard Chartered lowered its forecast from 5.8% to 5.4% while UBS lowered it from 5.7% to 5.2%.
JPMorgan also lowered China’s 2023 growth forecast from 5.9% to 5.5% while Nomura – which is among the most bearish on the Chinese economy lowered its forecast from 5.5% to 5.1%.
Despite the slowdown, AI has been a bright spot as Chinese companies like Alibaba are investing to enhance their AI capabilities
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