TMTPOST -- Alibaba Group CEO Eddie Wu depended the Chinese e-commerce heavyweight’s aggressive spending on artificial intelligence (AI) on an earnings call.

Credit：Alibaba Cloud

Responding a question about the return on investment (ROI) of the capital expenditure, or capex, Wu admitted a lot of capex investments that Alibaba is making are in cloud, especially around AI infrastructure. He explained the investments were made on the management’s understanding of the short-term demand, as well as their judgment of the long-term demand.

 In terms of that short-term demand, Wu said there's ongoing explosive growth in demand for AI for the compute power that drives AI for the API services to access the models, and it's not even possible now to fully meet all of that demand. “In the longer term, we view this opportunity around Generative AI as a historic opportunity, it's the kind of opportunity that probably comes along only once every 20 years, say, in terms of the ability to leapfrog technologically,” said Wu. “And that's why we think there's a high level of certainty around that demand going forward for inferencing, especially if you look at OpenAI's newest model, o1, with its COT, chain of thought, that implies exponential growth in demand for inferencing.”

The reason that Alibaba is investing aggressively in AI-related infrastructure for the short term and in the long term is that the leadership is “very optimistic about that demand”, Wu told analysts.

The financial report released last Friday showed Alibaba’s top line fell short of Wall Street expectation for a second straight quarter, but the cloud sales powered by AI maintained stellar growth. Revenue for the second quarter of the company’s fiscal year 2025 ended September 30, 2024 recorded RMB236.5 billion (US$32.7 billion), missing analysts’ estimate of RMB239.4 billion.

As a bright spot for the September quarter, Cloud Intelligence Group, generated RMB29.61 billion with a 7% year-over-year (YoY) increase. The cloud revenue was buoyed by double-digit public cloud growth, including increasing adoption of AI-related products. AI-related product revenue grew at triple-digit YoY for the fifth consecutive quarter, Alibaba said.

According to the report, free cash flow, a non-GAAP measurement of liquidity, was RMB13,735 million, representing a YoY decrease of 70%. The decrease in free cash flow was mainly attributed to our investments in Alibaba Cloud infrastructure, Alibaba said.

On the earnings conference, when asked about the future profitability of cloud, especially given the recent price decreases in cloud, Wu said Alibaba prioritized growing the user base and the reduction in token price can be treated as an investment in user acquisition and user growth. Namely,  by lowering the API token price, we , Alibaba will attract lots of new users to come and use the models to deploy their applications on its cloud, and that will result in an increase in their use of its compute power, storage, database and other products. As long as people come to the platform, they will inevitably end up making use of multiple different cloud products because Alibaba have a full technology stack, Wu said.

As to the AI adoption trend, Wu noted at the present time, there's very strong growth in demand to support both model training and inferencing, but in the longer term, inferencing will account for the larger share of growth in demand.