Alibaba Highlights AI Returns While Tencent Ramps Up Spending

China’s two internet giants are taking different approaches as the AI race intensifies. On May 13, both Alibaba and Tencent released their Q1 2026 results, revealing contrasting strategies in how they position themselves in the next phase of artificial intelligence.

Alibaba emphasized that its AI investments have moved beyond the initial stage and are now entering a cycle of commercial returns. Alibaba Cloud’s external commercialization revenue grew 40%, the fastest pace in nine quarters. AI‑related products accounted for 30% of that revenue, with eleven consecutive quarters of triple‑digit growth, reaching RMB 8.971 billion. For the first time, Alibaba disclosed annual recurring revenue from AI products, surpassing RMB 35.8 billion in Q1. CEO Wu Yongming projected that ARR from AI models and services, including the Bailian MaaS platform, will exceed RMB 10 billion in the June quarter and RMB 30 billion by year‑end.

Yet profitability remains under pressure. Alibaba reported an operating loss of RMB 848 million, compared with a profit of RMB 28.465 billion a year earlier. Adjusted EBITA fell 84% to RMB 5.102 billion, reflecting heavy investment in technology, instant retail, and user experience.

Tencent, by contrast, focused on breakthroughs in new AI products while acknowledging the drag they placed on earnings. Enterprise services revenue rose 20% year‑on‑year, supported by rising demand at home and abroad. Overall revenue was RMB 196.5 billion, up 9%, with gross profit of RMB 111.3 billion and Non‑IFRS operating profit of RMB 75.6 billion. Excluding new AI products, operating profit would have risen 17% to RMB 84.4 billion, indicating that Hy, Yuanbao, CodeBuddy, WorkBuddy, and QClaw reduced profit by nearly RMB 8.8 billion.

Tencent President Liu Chiping said the company invested RMB 18 billion in new AI products in 2025 and plans to at least double that in 2026. Capital expenditure in Q1 reached RMB 31.936 billion, up 63% from the previous quarter and 16% year‑on‑year. At the shareholder meeting, Pony Ma admitted Tencent’s early AI capabilities were weak but said the company has strengthened talent and training to close gaps. He likened Tencent’s AI journey to boarding a leaking ship, now standing on board but still unable to sit down, hoping the ship will move faster.

Tencent’s confidence to spend more on AI comes from the stability of its core businesses. For more than a decade, it has excelled at turning traffic and social networks into a commercial ecosystem. In the AI era, it aims to transform WeChat, gaming, and content into AI distribution gateways, a distinction from other Chinese internet firms. Investors once valued Tencent for stable profitability; now the market is beginning to imagine whether it could become one of China’s largest super application platforms in the AI era.

As the global AI race enters a new stage, Tencent must deliver more tangible results to prove its place.