Alibaba has leveraged its vast cloud computing infrastructure to become a major investor in Chinese generative artificial intelligence startups, offering the scarce network resources needed to train models instead of traditional cash and equity investments. Provides credits for use.
The Chinese e-commerce giant is looking to replicate the success of Microsoft’s investment in US leader OpenAI by acquiring stakes in prominent startups Moonshot, Zhipu, MiniMax and 01.ai. They are all developing local versions of US applications such as OpenAI’s ChatGPT and Character.ai’s Avatar chatbot.
As an example, Alibaba led a $1 billion funding round in Moonshot AI and valued the startup at $2.5 billion in February. Two people familiar with the deal said $800 million was invested in developing the fast-growing Kimi AI chatbot, with just under half of that amount paid in the form of cloud computing credits. Alibaba declined to comment.
Alibaba Chief Executive Eddie Yongming Wu has personally overseen investments in four major AI startups over the past year as the company seeks to reinvent itself as an AI innovator, according to people familiar with the matter. Ta.
The splurge investment comes at a critical time for Alibaba. The company is grappling with increasing competition from ByteDance and PDD Holdings in its core e-commerce market and charting a new path after an ambitious restructuring plan that would have led its cloud business to an initial public offering ended in disarray. I’m trying to draw it.
Alibaba canceled that plan in November, citing the impact of U.S. chip regulations. Mr. Wu has since taken direct control of his cloud business, pledging to invest in AI and make this business a central part of his strategy to drive growth.
The cloud sector had been experiencing single-digit average quarterly growth since 2022, following a crackdown on major internet companies by the Chinese government. Profitability lags far behind U.S. rivals such as AWS.
Charlie Dai, vice president and principal analyst at technology consultancy Forrester, said that Alibaba is “developing a public cloud platform with comprehensive capabilities powered by its extensive ecosystem for an open source model. “We support start-up companies,” he said, while generating new revenue for the company. Enable your cloud business by providing computing resources to train your models.
Alibaba’s Moonshot investment structure is similar to that of Microsoft and Amazon, with cash transferred to the AI startup with an agreement to use it to train and run models on servers in Azure and AWS, respectively. .
But, as one person pointed out, the difference with Alibaba’s investments is that the funds are never transferred to Chinese startups. Instead, it is held in an escrow account that businesses can count as incoming revenue.
Computing offers for equity investment are more attractive in China, where cloud resources are scarce due to U.S. restrictions on exports of advanced chips. As one Chinese AI scientist put it, “computing offerings are actually more valuable than cash.” “Accessing 10,000 GPUs is very difficult because of the semiconductor shortage. [processing] This is a cluster owned by Alibaba. ”
Social media group Xiaohonshu is offering more traffic to startups’ products through promotions on platforms like popular Instagram in exchange for equity, two people familiar with the matter said. The company is pursuing a unique investment method. Xiaohongshu did not respond to a request for comment.
Major Chinese internet companies such as Alibaba, Meituan, Xiaohongshu, and Tencent are funding this wave of startups, compared to previous AI startup clusters dominated by surveillance groups SenseTime and Megvii. plays a huge role in.
At this stage of the investment wave, which peaked between 2017 and 2019, a wide range of domestic venture capital firms, in addition to big tech investors such as Tiger Global and SoftBank, competed with the internet giants for deals.
However, due to the deterioration of Sino-US relations and the downturn in China’s VC industry over the past two years, many of today’s AI startups have become more dependent on funding from domestic internet companies, resulting in lower prices. This means that their bargaining power when making decisions is decreasing. As for cloud services, one of the people familiar with the deal said.
Alibaba has become a top investor as it seeks to monetize its AI chip holdings. Alibaba Cloud bought high-end Nvidia graphics processing units, including a large order of the watered-down A800 and H800s series, before the US restricted sales of advanced chips to Chinese companies. Officials say they are installing them in data centers in China and Southeast Asia.
Cloud providers are looking to take advantage of these chips before they lose value when Nvidia releases its next-generation AI processors. According to a person close to Alibaba, Alibaba will be prohibited from purchasing new chips due to the US government’s tightened export regulations.
Wu’s focus on AI investments comes after a regulatory crackdown on Alibaba’s alleged monopolistic practices that began in 2021 forced him to sell stakes in other internet companies under pressure from regulators. This marks a new chapter for Alibaba.
Alibaba has become such an important supporter of Chinese AI startups that industry insiders say, “If you want to invest in Chinese AI, buy Alibaba stock. I’ll just buy stocks,” he begins joking. This is a China AI ETF,” said one manager of an Alibaba-backed AI startup.
