China’s technology giant Alibaba Group has set an ambitious goal to surpass $100 billion in revenue from its artificial intelligence (AI) and cloud businesses over the next five years, driven by the anticipated boom in AI demand. This significant announcement comes despite the company reporting a substantial 67% drop in profit during the October-December quarter, a period where its cloud business demonstrated robust growth.

For the October-December quarter, Alibaba, which has strategically shifted its focus towards cloud and AI technologies in recent years, reported an overall revenue increase of 2% year-on-year, reaching 284.8 billion yuan ($41.4 billion). This figure, however, fell below analysts’ estimates. In stark contrast, revenue from its cloud business experienced a significant jump of 36% in the same quarter compared to a year ago, reaching 43.3 billion yuan ($6.2 billion).

Despite the strong performance in its cloud division, the company’s profit for the quarter was 16.3 billion yuan ($2.4 billion), a sharp decline from 48.9 billion yuan reported in the corresponding quarter last year. This profit erosion was partly attributed to growing marketing and sales expenses. Additionally, the Hangzhou-based company, which originated in e-commerce, has been grappling with intense price wars in the food delivery segment in recent months, further pressuring its profitability.

CEO Eddie Wu expressed strong optimism during an earnings call, stating that Alibaba is poised to benefit from the “exponential growth in AI demand” and the “enormous and sustained growth momentum of the AI market.” The company has been actively expanding and upgrading its flagship Qwen AI app and consumer-facing chatbot, while also providing essential cloud computing and storage services to a broad base of commercial customers.

To bolster profitability amidst rising costs and increasing demand for its advanced services, Alibaba announced plans to increase prices for some of its AI services by as much as 34%. This move underscores the company's strategy to monetize its AI investments effectively. Furthermore, earlier this week, Alibaba launched Wukong, an agentic AI tool, as part of its continuous expansion of products tailored for commercial clients.

Alibaba’s commitment to AI infrastructure is evident in its past pledges, including an investment of at least 380 billion yuan ($53 billion) over three years to advance its cloud computing and AI capabilities. However, its AI ambitions have also faced recent tests, notably with the departure announcement of Lin Junyang, the head of its Qwen AI model division, earlier this month.

The broader landscape sees Chinese tech companies intensely stepping up their competitiveness against U.S. rivals, aiming to grow their dominance in the AI sector, a trend highlighted by the industry impact of AI startup DeepSeek last year. Following these earnings results, Alibaba’s U.S.-listed shares experienced a decline of more than 7% during midday trading on Thursday, reflecting market reactions to the mixed financial performance and strategic outlook.