Alibaba – AI Face Lift

Qwen is Alibaba’s opportunity

• When it comes to digital use cases, China has long been shown to be highly innovative, often coming up with ideas long before the West does, meaning that when one of its leaders makes a change, it is worth paying attention to.
• Alibaba is upgrading its AI app from Tongyi to Qwen, which makes a lot of sense as this model is relatively well known and consequently will also make an effective rebrand for Alibaba’s AI offering.
• It is not just a rebrand but also a lot of rewiring going on under the hood to make this an app with functionality that goes beyond what Gemini, ChatGPT and so on are currently capable of.
• The rebranding has been pretty successful as it has achieved over 10m downloads in the week since launch, even though the real changes have yet to be put through.
• Alibaba has a series of digital life services such as shopping (core business), maps, food delivery, travel booking, health and so on that it intends to bring into the new service over time.
• Alibaba is hoping that the result will be an agent with the ability to access many of the other services that its users access daily.
• Some of the early demonstrations from OpenAI indicate that an LLM can add a degree of intelligent automation to digital services that previously had to be done manually.
• This is precisely what Alibaba is going for, and this is expected to be rolled out in the coming months.
• The fact that the base models are all available in the open source community, where they have a pretty good reputation, is also a big boost.
• This is because start-ups and developers, both inside and outside of China, are using Qwen as the foundation for their products, which is creating a momentum for Alibaba in the AI ecosystem.
• This also means that it should be able to include access to 3^rd party apps and services in the Qwen app and not just its own, which increasingly will bring it into competition with Tencent.
• Tencent is doing the same thing with its WeChat App, which, with over 1bn users who use it for multiple transactions in their daily lives, represents formidable competition.
• However, when there is a market dislocation, such as AI, it is an opportunity for market leadership to change and however slim Alibaba’s chance is of dislodging Tencent, that chance is now at its highest.
• Tencent is not particularly strong when it comes to its AI offering, and in my opinion, its models lag behind those of Baidu, Alibaba, DeepSeek and several of the startups.
• Hence, the quality of its AI services may not be as good as those of the competition, and this could give Alibaba an opportunity to entice users to spend more time with its services and those of 3^rd parties who have developed on Qwen.
• Alibaba is reporting fiscal Q2 2026 results tomorrow, and I suspect that there will be a big focus from Alibaba in terms of pushing its AI ecosystem aspirations forward, as well as making its ecommerce offering better and more effective through the use of AI.
• Things are looking up for Alibaba as its investments in AI look to have been well made, resulting in a leading foundation model which gives it an edge in the race over its peers.
• This, combined with gradually improving e-commerce performance, makes me pretty comfortable that the recovery will continue, which will be evidenced in the results that are published tomorrow.
• Alibaba remains cheap on 23.2x March 2026 and 16.8x March 2027 PER, meaning that I remain happy to sit on my position, which is now looking much better than it was at the beginning of 2025.