"I think the chance that the artificial intelligence (AI) bubble will burst is low for at least the next three years."
Alibaba, a major Chinese big tech company, released third-quarter results and pushed back squarely against talk of an AI bubble. According to China Business News on the 26th, Alibaba Chief Executive Officer Wu Yongming said this on an earnings conference call late the night before, noting that the supply speed of Alibaba Cloud's AI servers is seriously failing to keep up with customer demand and that the backlog of unfulfilled orders continues to rise.
Wu said AI customer demand remains very strong. He explained, "Since the second half of this year, shortages have appeared worldwide across a range of areas including storage manufacturers, CPUs, and AI servers, forming a cycle in which AI demand is driving capacity expansion throughout the supply chain."
Wu expects an expansion cycle lasting at least two to three years and projected that AI resources will remain in short supply for at least the next three years. He said Alibaba's own GPU resources, as well as new GPU facilities in the United States, are running almost at "full capacity," and even older GPUs from three to five years ago are operating at saturated utilization.
Wu said that beyond the demand side, the continued performance improvement of AI foundation models is steadily expanding expectations for the AI industry. He projected that the tasks AI models can perform will keep increasing, applicable industry scenarios will broaden, and industrywide penetration will continue to rise.
In response, Alibaba is pushing the pace of building data centers and the AI supply chain to the maximum. On the previously planned infrastructure investment of "380 billion yuan (about 78 trillion won) over three years," Wu said, "Looking at it now, that figure seems somewhat conservative," signaling the possibility of additional investment.
Meanwhile, Alibaba posted revenue slightly above market expectations in the third quarter. Alibaba's third-quarter revenue was 247.795 billion yuan (about 51 trillion won), up 5% from a year earlier. Excluding the revenue of the already divested retailers Gaoxin Retail and Intime, the revenue growth rate reaches 15%.
However, profitability deteriorated sharply. Operating profit plunged 85% from a year earlier to 5.365 billion yuan (about 1.105 trillion won), and adjusted EBITDA, a key cash flow metric, fell 78% year over year to 9.073 billion yuan (about 1.8536 trillion won).
Improvements to user experience and large-scale investments were the reasons. Alibaba Group Chief Financial Officer Xu Hong said, "Even at the expense of short-term profitability, we are reinvesting profit and free cash flow into the foundation for future growth." In fact, over the past year, Alibaba invested about 120 billion yuan (about 24.7212 trillion won) in AI and cloud infrastructure.
Amid this, steady growth in the cloud business provided some cushion. Alibaba Cloud Intelligence Group, which oversees the cloud business, posted revenue of 39.824 billion yuan (about 8.2041 trillion won) in the third quarter, up 34% from a year earlier. That is a record growth rate, with AI-related product revenue achieving triple-digit growth for nine consecutive quarters. Adjusted EBITDA for the third quarter was 3.604 billion yuan (about 742.6 billion won), up 35% from a year earlier.