Alibaba and Tencent's ability to monetize AI has been underestimated by the market.

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The market’s concerns over the monetization potential of AI in China’s internet giants on the consumer end may be a misjudgment.

According to Zhui Feng Trading Desk, HSBC stated in its latest report released on April 2 that the AI monetization capabilities of Alibaba and Tencent have been systematically underestimated by the market, and the monetization opportunities of AI in core areas such as advertising, e-commerce commissions, and payments for both companies have not been fully reflected in their share prices.

Although Alibaba and Tencent have recently announced large-scale AI investment plans and raised their outlooks for cloud business revenue—Alibaba even set a target of reaching $100 billion in cloud revenue within five years, implying a compound annual growth rate of over 40%—both companies’ share prices retraced after their earnings releases. This is not a signal of turning pessimistic on AI’s prospects, but rather the result of investors’ short-term concerns that consumer-facing (to-C) AI investments are driving higher operating expense ratios.

If Tencent, Alibaba, and ByteDance can seize 10% to 50% of advertising revenue share from trading and search platforms, and the three share the gains equally, this opportunity could bring Tencent and Alibaba up to around 8%-11% upside in revenue by 2027. Based on this, HSBC maintains buy ratings on Alibaba and Tencent, with target prices of $180 and HK$750, corresponding to about 44% and 51% upside from current prices, respectively.

The Market Misinterpreted the Signal of AI Investment

The sell-off in Alibaba and Tencent shares stems from short-term concerns over rising operating expenses, not doubts about the long-term returns of AI. The report believes that the market still has confidence in the long-term ROI of both companies’ capital expenditures and the sustainability of their free cash flows and balance sheets; the real concern is that consumer-end AI investments are driving up operating expense ratios.

The biggest monetization opportunity in consumer AI lies in advertising. The report predicts that China's online advertising market size will reach 1.91 trillion RMB in 2027, according to estimated growth of 10% and 9% for 2026 and 2027, respectively. On this basis, it is estimated that trading and search platforms (excluding Tencent, Alibaba, and ByteDance) will occupy about 30% of the ad market share by then.

If Tencent, Alibaba, and ByteDance can, thanks to larger user scale, higher usage frequency, and stronger closed-loop transaction capabilities, seize 10%-50% of ad revenues from these platforms and split the gains equally, Tencent’s total revenue upside would be 2.1%-10.6%, and Alibaba’s would be 1.5%-7.5%.

If AI can expand overall consumer demand, increase online penetration, or platforms follow foreign peers in launching subscription fee models, the above estimates may have further upside potential.

Tencent: Ecological Moat is Hard to Replicate

Tencent’s advantage lies in the high stickiness and diverse monetization paths of its WeChat ecosystem.

Data show that WeChat’s DAU/MAU ratio reached 82% in February 2026, far higher than Doubao’s 30% and Qwen’s 16%. Users used the app 40 times per day on average, also significantly exceeding Doubao’s and Qwen’s 4-5 times. This high-quality, high-frequency user base forms an unrivaled network effect moat.

In terms of monetization, Tencent is deeply integrating OpenClaw-like AI features into WeChat, covering chat, search, Channels, Official Accounts, Mini Programs, and Mini Shops, building the next generation of intelligent AI services. Tencent’s upside in monetization will come from three directions: First, advertising—by using AI to automate ad targeting, bidding, and delivery to improve advertisers’ ROI and conversion rates at an equivalent ad load; second, commissions—the AI-powered shopping experience will drive GMV growth in Mini Shops; third, payment fees—increased transaction volumes in Mini Programs and Mini Shops will contribute directly to payment revenue.

On the enterprise side (to-B), Tencent Cloud achieved 5 billion RMB of adjusted operating profit in 2025, and revenue growth has picked up. Tencent Cloud’s upside will come from the PaaS and SaaS layers, including proprietary AI agent products like WorkBuddy and Qclaw, as well as the AI empowerment of collaboration tools like WeCom and Tencent Meeting.

Alibaba: Dual Engines of to-B and to-C

Alibaba has clear AI monetization paths on both enterprise and consumer sides.

On the enterprise side, Alibaba Cloud’s external cloud revenue grew 35% year-on-year in the quarter ending December 2025, and AI-related revenue has posted triple-digit growth for ten consecutive quarters. Alibaba ranks first in market share for LLM tokens in China, with 32% share in the second half of 2025 and a six-fold increase in platform token consumption over the past three months. Its self-developed chip division, T-Head, shipped 470,000 AI chips as of February 2026, with annual revenue exceeding 10 billion RMB. More than 60% of T-Head chips serve external customers, covering internet, financial services, autonomous driving, and over 400 enterprise clients.

On the consumer side, Alibaba’s Qwen to-C had 300 million monthly active users in February 2026, and has been integrated into Taobao Tmall, Alipay, Fliggy, Damai, Amap, among other platforms. By the end of February 2026, 140 million users had completed their first AI-driven shopping experience through Qwen’s agent features, covering food delivery, fresh food, ticketing, and travel booking scenarios. As user scale, frequency, and stickiness further improve, this will lay the foundation for monetization of commissions and ad revenue in transaction-related verticals.

Platform Companies Superior to Pure Model Companies

The report clearly expresses a preference for platform-based internet companies, which are seen as structurally advantaged compared to model pure plays.

China’s foundational model ecosystem consists of four layers: chips, infrastructure, models, and applications. Alibaba is the only company covering all four layers, and ByteDance is accelerating in-house chip layout. In contrast, model pure plays such as Zhipu and MiniMax rely on cloud service providers (CSPs) for computational power; if CSPs prioritize their own usage or raise prices, both revenues and costs of these companies face risks.

HSBC gives Zhipu and MiniMax hold ratings and target prices of HK$920 and HK$1,000, respectively. Since their IPOs, the two companies’ shares have risen 542% and 687%, respectively (Hang Seng Index fell 1% during the same period), and valuations now basically reflect their modeling strengths; computational power constraints may limit their revenue growth upside.

In the to-B competitive landscape—covering AI compute capacity (GPU reserves, cloud ecosystem, self-developed chips), MaaS (token market share, Artificial Analysis Intelligence Index ranking, modality coverage), and code capabilities—Alibaba and ByteDance hold more favorable positions in enterprise monetization, while Zhipu and MiniMax lead in code capabilities.

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The above highlights are from Zhui Feng Trading Desk.

For more detailed interpretation, including real-time analysis and frontline research, please join the 【Zhui Feng Trading Desk · Annual Membership】

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