Alibaba Announces Plans to Invest $53B in Infrastructure to Meet AI Demand

Alibaba Group plans to invest more than RMB 380 billion ( $53 billion) to develop its cloud computing and artificial intelligence infrastructure over the next three years, marking the largest such commitment ever by a Chinese private company.

The Chinese e-commerce behemoth announced the commitment to building out its digital backbone in a statement on Monday, after Alibaba chief executive Eddie Wu Yongming on Friday had made infrastructure a focal point of an investor earnings call.

“The AI era presents a clear and massive demand for infrastructure. We will aggressively invest in AI infrastructure,” Wu said in the call. “Our planned investment in cloud and AI infrastructure over the next three years is set to exceed what we have spent over the past decade.”

The tech firm co-founded by Chinese business magnate Jack Ma is laying out its plans for infrastructure expansion after opening new data centres in Thailand and Mexico this month, and ramping up its Alibaba Cloud platform to compete with Microsoft Azure and Amazon’s AWS as the world’s online giants rush to provide the digital  backbone for AI-led innovation.

Power Grid of Tomorrow

“As AI models evolve, a growing share of AI-generated data will be processed and distributed via cloud networks – a trend that positions Alibaba Cloud as a key infrastructure provider,” said in a statement this week.

Describing AI as a “once-in-a-generation” opportunity, Wu said AI’s ability to mimic human levels of intelligence could affect or replace about 50 percent of global GDP, driving significant economic and technological shifts.

The tech firm has named cloud computing its clearest revenue driver in AI, with demand for AI hosting services surging. “Imagine that AI becomes the biggest commodity in the future – similar to electricity today – cloud computing networks will become the equivalent of the power grid,” Wu said in the earnings call.

The tech giant also expects to utilize AI to enhance efficiency and user engagement for its applications, including its Taobao consumer shopping app, smart search app Quark and workplace collaboration app DingTalk.

The announcement of Alibaba’s ambitions follows the launch of its first data center in Mexico last week to provide cloud computing services to businesses and developers across Latin America. Earlier this month Alibaba Cloud launched its second data centre in Thailand, as the company has been promoting its upgraded suite of cloud applications to businesses.

Rising concerns about data sovereignty and local regulatory requirements had pushed Alibaba’s cloud computing arm to shift its investment priorities toward Southeast Asia and Mexico and away from Australia and India with the company announcing last July plans to shut down its data centers in Sydney and Mumbai.

Most of Alibaba Cloud’s public cloud infrastructure is located within China, with the AWS-like platform also operating public data centers in London, Frankfurt, Tokyo and Silicon Valley, besides Southeast Asia and Mexico.

Revenue from Alibaba’s Cloud Intelligence Group grew 9 percent year-on-year in the nine months ending 31 December and accounted for 11.6 percent of the group’s total revenue in the period, according to its latest quarterly report.

The unit counts luxury goods conglomerate LVMH Group, Singapore’s digital health AI company FathomX and Switzerland-based International Canoe Federation as its customers.

Uncertainty on Future Demand

On the same day that Alibaba’s announced its AI ambitions, Apple announced a plan to invest over $500 billion over the next four years on initiatives that include AI, silicon development, R&D and a new 250,000-square-foot factory in Houston, Texas.

These events come at a time investors are beginning to question whether big tech firms are overestimating the future demand for AI services.

TD Cowen analysts pointed out last week that Microsoft appears to have recalibrated its data centre leasing, with TD Cowen’s channel checks indicating that the company has canceled deals totaling several hundred megawatts with “at least two private data center operators”, while also pulling back on planned international investments.

Microsoft earlier said it would spend $80 billion this fiscal year on AI data centers.

These developments arrive just weeks after OpenAI, in partnership with Softbank, Oracle and Abu Dhabi-based investment firm MGX, launched the ambitious Stargate project – a $500 billion joint venture aimed at building new AI infrastructure across the US over the next four years.