Alibaba AI feast may get food wars indigestion

China International Fair for Trade in Services, in Beijing
An Alibaba logo is displayed at the company's booth at China International Fair for Trade in Services (CIFTIS) in Beijing, China, September 10, 2025. REUTERS/Maxim Shemetov
HONG KONG, Nov 26 (Reuters Breakingviews) - China's Alibaba (9988.HK)
, is fighting price wars on two separate fronts, and that could cost it down the line. On one battlefield – artificial intelligence and cloud computing – boss Eddie Wu's aggressive spending is starting to pay off. But the campaign for market share in food deliveries and so-called quick commerce is overshadowing the $375 billion company's AI gains.
The e-commerce giant has emerged as one of China's most promising AI firms. In the first half of the year, it commanded 36% of the domestic AI cloud market, according to research firm Omdia, more than the combined share of ByteDance, Huawei and Tencent (0700.HK)
. Moreover, Alibaba's open-source models are among the world's top performers. The ambitious goal, as laid out by Wu earlier this year, is for the Hangzhou-based company to be one of only five or six global full-stack AI service providers.
Tuesday's results
underscore Alibaba's progress despite the onslaught of low-cost models and apps from DeepSeek, ByteDance and other rivals. Revenue in its Cloud Intelligence Group rose an impressive 34% year-on-year to 39.8 billion yuan ($5.6 billion) in the three months to the end of September. And investors fretting over business models and profitability will be relieved: the division's adjusted earnings before interest, tax and amortisation – the company's preferred metric for operating profit – rose 35% from a year earlier, to 3.6 billion yuan.
Yet Alibaba's big AI push comes at a time when its cash-cow e-commerce business looks most vulnerable. Earlier this year, nemesis JD.com (9618.HK)
muscled into the food delivery market dominated by Meituan (3690.HK)
and Wu's outfit. That sparked a cash-burning subsidy fight which has now expanded into an "instant retail" war, where the three companies are battling to offer food and an increasing array of other items to be delivered in an hour.
Profits have imploded. Alibaba's total operating income cratered 85% in the most recent quarter, while JD reversed into an operating loss in the same period. The $77 billion Meituan, which is set to report quarterly earnings this week, is also expected to post an operating loss of more than $2 billion, per analyst forecasts on Visible Alpha. There are some signs of improvement: since November, Alibaba notes that losses per order in quick commerce have halved compared to July and August.
The problem for Alibaba is that cash flows from its e-commerce business will ultimately fund much of Wu's AI ambitions. That means the company will have to fight tooth and nail to defend its online shopping stronghold. As students of history know, two-front wars tend to be hard to win.
Follow Robyn Mak on X
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    Editing by Antony Currie; Production by Ujjaini Dutta

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