The recent surge in the stock market for Chinese companies listed in the US has garnered significant attention, particularly highlighting Alibaba’s remarkable performance following its quarterly earnings report. After revealing its financials for the fourth quarter of 2024, which corresponds to the third quarter of fiscal year 2025, Alibaba’s share price witnessed a spectacular increase of over nine percent in pre-market trading. The excitement did not stop there; the price peaked at a staggering rise of nearly fourteen and a half percent, reaching a value of 144.14 dollars per share. The enthusiasm also echoed in Hong Kong, where Alibaba’s shares closed at 138.5 HKD, marking a similar increase of approximately 14.56%, which pushed its market capitalization to an impressive 2.63 trillion HKD.

In a striking contrast to the previous years' scrutiny regarding Alibaba's operational performance and competitive standing, analysts at this earnings call shifted their focus entirely toward the potential future of AI driven by Alibaba. This shift in narrative feels reminiscent of discussions from five years ago when the company first began its foray into artificial intelligence.

While Baidu explores its AI potential without significant breakthroughs, Alibaba seems to have finally harnessed the long-anticipated benefits of its sustained efforts. This spike in Alibaba’s stock represents not only a recovery but an affirmation of its substantial investments in AI technology in the past month. A friend of mine found himself at a crossroads, contemplating whether to divest from his holdings in Chinese fund stocks after waiting three years for just such an opportunity. The pivotal question looms: Can Alibaba sustain its meteoric rises in the future?

During the earnings call, Alibaba’s CEO, Wu Yongming, made bold claims, stating, “We believe Alibaba Group stands as one of the key players in the AI domain within the Asian markets.” Such radical assertions have been rare from Alibaba in recent years. Wu emphasized that they view AI as a transformative industry shift occurring once every several decades. Their strategic goal in AI is to pursue Artificial General Intelligence (AGI).

To Alibaba, AGI is not merely an abstract concept; rather, it has been positioned as a tangible performance benchmark that the company aims to achieve. The CEO outlined a visionary estimate of the market potential for AGI, suggesting that it could eventually replace or significantly influence eighty percent of current labor roles. With half of the world's GDP being attributed to labor costs, the potential market impact equates to a whopping 40% of global GDP. This ambitious ambition establishes a projection of substantial monetary value and emphasizes the stakes Alibaba is willing to play for in the AI field.

During the recent financial briefing, Wu provided an unprecedented level of detail regarding Alibaba’s AI roadmap, touching on aspects from foundational infrastructure to ecosystem development, model training, and application deployment. Rather than maintaining previous levels of investment, Alibaba plans to invest more in AI and cloud infrastructure over the next three years than in the last ten combined, a staggering amount projected at over 380 billion Chinese yuan.

This translates to an annual investment of at least 120 billion yuan, amid a realigning tech landscape. In the latest quarter, Alibaba’s capital expenditures surged by 318 billion yuan year-on-year, reflecting an impressive growth rate of approximately 260%. This acceleration was largely attributed to increased investments in its cloud infrastructure.

However, when contrasted with Amazon's audacious commitment of 100 billion dollars towards AI by 2025, it becomes apparent that Alibaba is not operating at the same financial scale. Despite this disparity, both Wu and Amazon's Jeff Bezos might agree on the criticality of AGI. Wu noted, “We believe improving intelligent capabilities is the core axis of this wave of technological productivity reform.” Other applications, he insists, merely represent “opportunities along the journey.”

Furthermore, Wu hinted at an upcoming release of a deep inference model based on Qwen2.5-Max, expected to elevate Alibaba’s competitive edge significantly. This announcement excited analysts, fostering optimistic expectations as the release approaches.

Momentarily, the opportunities in cloud services are palpable for Alibaba. As the gap narrows between different AI models, this situation could serve to fortify cloud computing companies. Large AI models—be they open-source or proprietary—are contingent on cloud hosting, which positions Alibaba Cloud as the backbone of this burgeoning ecosystem. This mirrors the electric grid's rise in importance during the power age.

Add to this the robust fundamentals reflected in Alibaba’s recent financial performance. This quarter, revenue reached 280.15 billion yuan, showcasing an annual growth of eight percent, with net profits soaring to 464.34 billion yuan (a staggering 333% year-on-year increase).

Breaking down the performance, the restructuring from previous cost-cutting measures proved productive, with nearly all segments of the business exhibiting growth, apart from the restructuring efforts within its logistics unit, Cainiao. Notably, Alibaba Cloud generated a revenue of 31.742 billion yuan, growing by 13%, with an EBITDA profit margin of 9.89%—an increase driven primarily by demand for AI inference services.

Meanwhile, the e-commerce division remains a heavyweight, attaining a revenue of 136.09 billion yuan, representing a growth of five percent, marking the most substantial growth observed in recent quarters. Crucially, the customer management revenue for Taobao and Tmall increased by nine percent, revealing that as the platform expands, merchants are also more inclined to invest in services, leading to improved take rates and reduced competitive pricing pressures.

All these factors underscore that Alibaba has finally established a degree of stability, fortifying its narrative around AI—a narrative that has rekindled hope in the market and positioned Alibaba as a leader amid shifting dynamics.

Last year, Alibaba communicated its commitment—“all in AI”—and began integrating this technology into its operations. However, tangible confidence from the market in Alibaba’s new ventures only truly crystallized earlier this year. The current AI narrative, therefore, bifurcates into two focal points: the evident investments in AI infrastructure and platform accessibility, and the potential disruptive opportunities that may arise along the path to achieving AGI.

Wu recently noted, despite the unclear business models surrounding foundational large models, that the cloud computing network symbolizes AI’s backbone akin to the grid for electricity—a robust infrastructure promising discernable returns on investment with “90% of tokens generated and outputted on cloud computing networks in the future.”

Internally, other business units like everyday consumer platforms (Taobao, Ele.me, Fliggy, among others) can capitalize on AI to enhance customer interactions and boost transaction efficiency, which broadens user value. Individual AI products, such as Quark and Tongyi Qianwen, support AI-driven search and productivity tasks, while DingTalk (aimed at B2B) and Gaode Map, frequented by millions, are also expected to witness significant improvements through AI.

On February 21, the day following the earnings call, Alibaba's stock in Hong Kong surged by 14.56%, achieving a record trading volume of 44.458 billion HKD, subtly signaling market exuberance. The Hang Seng Index and the Hang Seng Tech Index similarly exhibited remarkable rebounds, surging by four percent and 6.5 percent, respectively, driven further by heightened expectations surrounding Alibaba's AI investments.

Prior to this resurgence, Alibaba's valuation hovered around ten times its earnings, positioning it in line with traditional retail corporations. Yet, analysts observed that the market had almost neglected to factor in the profitability derived from its e-commerce operations while dismissing cloud and AI valuations. In this light, Alibaba has become the centerpiece of renewed investor interest in Chinese assets.

Institutions like Morgan Stanley have revised their price target for Alibaba from 125 dollars to 170 dollars, while HSBC updated theirs from 125 HKD to 156 HKD, asserting that the tipping point for AI-driven growth has reached a critical juncture.

Peter Milliken from Deutsche Bank highlighted 2025 as a pivotal moment for recognizing China’s international competitive edge, suggesting that advancements in high-end manufacturing and services are reshaping global perceptions. This aligns with the notion that China's economy will diverge from previous valuation discounts experienced in the stock market.

Furthermore, as data from the past week indicates, there has been a significant influx of capital into Hong Kong equities, with 22.42 billion HKD pouring in just this past Tuesday. Remarkably, 17.3 billion HKD of this figure was directed towards Alibaba, accounting for a third of the week’s net fund inflow.

As the landscape for emerging industries continues to evolve, economic sentiments, whether optimistic or driven by investor enthusiasm, typically foster substantial upward movements in valuations. Yet, amidst the promise of newfound capital expenditures, selecting whether to be cautious or optimistic becomes increasingly complex.

In summary, the ongoing emergence of AI-driven narratives in the stock market brings to light stories often driven by aspirations and potential, laying bare the beauty of uncertainty in evolving market dynamics.