Alibaba's (09988) teleconference: AI ARR will exceed 30 billion yuan by the end of the year, "there is no idle card in the server", capital expenditure will exceed 380 billion yuan.

Facing the historic opportunity brought by AI, Alibaba (09988) is at a crucial point in the transition from technological dividends to commercial dividends. During the analyst conference call for the Q4 FY2026 financial report, Alibaba CEO Wu Yongming stated, "AI is driving the full upgrade of Alibaba Cloud's business, shifting the growth momentum from traditional computation and storage to models, computing power, and agent services." Wu Yongming expects that in the quarter ending in June, the annual recurring revenue (ARR) of AI models and application services, including the Hundred Smelting MaaS platform, will exceed 10 billion RMB, reaching 30 billion RMB by the end of the year. "The high profit margin advantage of this revenue is gradually becoming apparent and will be the pillar of our healthy and high-quality revenue growth in the future." In the first quarter, the proportion of AI-related product revenue in Alibaba Cloud's external commercial revenue exceeded 30%, with a quarterly revenue of 8.971 billion RMB. It is expected that in the next year, the proportion of AI-related product revenue will exceed 50%, becoming the main engine of revenue growth for Alibaba Cloud. To meet the huge demand for AI, Alibaba mentioned that future capital expenditures will exceed the original plan of 380 billion RMB. Wu Yongming revealed that compared to 2022 before the outbreak of large models, the scale of the data center to be built in the future will be "basically more than ten times the growth compared to 2022." It is reported that Alibaba's independently developed GPU chips are now in mass production, with over 60% of the computing power serving external commercial customers. The commercial turning point for AI has arrived, with "almost unlimited demand for tokens" The market is highly concerned about the actual monetization ability after the landing of large models. Wu Yongming revealed during the conference call that the ARR of AI models and application services, including the Hundred Smelting MaaS platform, has grown rapidly, with recent figures surpassing 8 billion RMB. He expects this number to exceed 10 billion RMB in the quarter ending in June and reach 30 billion RMB by the end of the year. This exponential growth is primarily driven by the demand for complex workloads among enterprises, particularly in the field of AI coding (intelligent coding agents). Addressing concerns about the low willingness of Chinese companies to pay for SaaS products, Wu Yongming gave a powerful statement: "As long as the value created by helping them complete tasks in the enterprise exceeds the token cost, the demand for API tokens will be almost unlimited." Wu Yongming emphasized that compared to traditional SaaS business, the Maas (Model as a Service) business currently has higher gross margins and is in high demand. The high-profit margin advantage of this revenue is gradually becoming apparent and will be the pillar of healthy and high-quality revenue growth in the future. The surplus of computing power: "No card is idle" Addressing questions about the significant capital expenditures in AI infrastructure that may impact free cash flow, Alibaba's management conveyed a clear commitment during the conference. CFO Xu Hong stated that based on a net cash position of over $59 billion (excluding debts maturing in over five years), the group will continue to invest significantly in key opportunities over the next two years. Regarding return on investment, Wu Yongming compared AI to the manufacturing industry, emphasizing the construction of two key "AI training" and "AI reasoning" data center factories. He mentioned that the investment return in AI data center construction is very clear in the long term. In terms of investment return, Xu Hong detailed that the focus remains on AI+cloud and consumer businesses, with a strong belief in the long-term growth potential and competitive advantage in these areas. The group will continue to make decisive investments to support long-term growth, maintaining strategic discipline to create greater value for shareholders. The above text summarizes the key points from the original article about Alibaba's investments in AI and the transition to commercial dividends, along with insights from the management team regarding the company's strategic priorities and future growth prospects.