Ali's AI revenue targets 30 billion; Tencent reveals its AI ledger for the first time! Two "so-so" financial reports trigger surges for both companies.

Ali's AI revenue targets 30 billion; Tencent reveals its AI ledger for the first time! Two "so-so" financial reports trigger surges for both companies.

Alibaba and Tencent’s heavy bets on AI are being recognized by the market.

On May 13, Alibaba and Tencent both released their latest quarterly financial reports. Both companies’ revenues were slightly below market expectations, but their U.S. stock prices soared overnight: Alibaba's U.S. shares rose 8.3%, Tencent Holdings’ ADR rose over 5%.

The market is not buying current profits, but the prospects of AI commercialization.

Alibaba CEO Wu Yongming stated on the earnings call that annual recurring revenue (ARR) for AI models and application services will surpass 10 billion yuan in June, and triple to over 30 billion yuan by the end of the year. This statement directly boosted investor confidence. On Tencent’s side, although overall revenue was slightly below expectations, the resilience of its advertising and gaming business, as well as the management’s first quantified disclosure of AI investment, were also recognized by the market. Both companies’ AI is starting to generate revenue.

J.P. Morgan issued a quick review after the financial reports, maintaining an “overweight” rating for both Alibaba and Tencent, with a U.S. share price target of $200 for Alibaba and a Hong Kong share price target of HK$690 for Tencent.

Alibaba: Strong cloud and AI, commercialization accelerating

Alibaba’s financial report was perhaps not dazzling in its main income and profit numbers.

For the quarter ended March 31, 2026, Alibaba’s revenue was 243.38 billion yuan, a year-on-year increase of 3%, lower than the market forecast of 246.5 billion yuan. Excluding the impact of disposed businesses such as Sun Art Retail and Intime, same-caliber revenue increased by 11% year-on-year. Non-GAAP net profit was 86 million yuan, compared to the market consensus expectation of 14.3 billion yuan. J.P. Morgan stated that this number will “significantly adjust” market expectations for fiscal year 2027 earnings.

Why did profits decline? The core reason is concentrated investments in AI and instant retail. The “all other” business segment (covering Qianwen App, AI infrastructure, etc.) saw adjusted EBITA losses expand from 9.8 billion yuan in the previous quarter to 21.2 billion yuan. According to All-weather Technology, J.P. Morgan analysts pointed out that Alibaba actually reinvested over 90% of its China e-commerce quarterly profits into Qianwen user acquisition and AI promotion. “This spending pace is expected to continue until fiscal year 2027.”

But the eye-catching cloud business data gives the market another reason.

In Q1, Alibaba Cloud revenue was 41.626 billion yuan, a year-on-year increase of 38%. External client revenue growth accelerated to 40%, the fastest in nine quarters. AI-related product revenue was 8.971 billion yuan, registering triple-digit year-on-year growth for the eleventh consecutive quarter, with ARR surpassing 35.8 billion yuan. Adjusted EBITA for cloud business grew 57% year-on-year to 3.796 billion yuan, with profit margin up 1.1 percentage points to 9.1% year-on-year.

Alibaba is seizing “a huge opportunity”, Wu Yongming: Data center scale to increase tenfold

Wu Yongming stated on the call: “AI is driving an upgrade across Alibaba Cloud’s entire business, shifting growth momentum from traditional computing and storage to models, computing power, and agent services.” He also revealed that future capital expenditures will exceed the original planned 380 billion yuan, and that the data center scale will “increase by more than ten times compared to 2022”, with “not a single server card idle”.

Wu Yongming gave a clearer commercialization goal: It is expected that the ARR for AI models and application services in the June quarter will surpass 10 billion yuan, and 30 billion yuan by year end. He also stated that the share of AI-related product revenue will exceed 50% within the next year, becoming the main engine for cloud revenue growth.

Alibaba CFO Xu Hong stated in the report statement: “We are full of confidence in the business outlook and will continue to invest in AI + Cloud to strengthen our competitive advantage.”

Rumor has it that Alibaba also plans to list its chip subsidiary Pingtouge separately to capture investor interest in domestic chips. Pingtouge’s self-developed GPU has already achieved mass production, with over 60% of computing power serving external commercial clients.

Citigroup analysts raised Alibaba’s U.S. share price target after the financial report and wrote: “Although AI technology investment drags on profits, management said this is a deliberate strategic choice aimed at seizing a huge market opportunity.”

Tencent: First quantified AI investment disclosure, ad revenue accelerates to 20%, AI is starting to monetize

Tencent’s Q1 revenue was 196.5 billion yuan, up 9% year-on-year, slightly below the market expectation of 199.4 billion yuan. Net profit increased by 21% year-on-year to 58.1 billion yuan, exceeding expectations.

More noteworthy is a group of comparative data proactively disclosed by management: Reported non-IFRS operating profit was 75.6 billion yuan, up 9% year-on-year; Without the impact of investment in new AI products (Yuanbao, Hy, CodeBuddy, WorkBuddy, and QClaw), the figure would have reached 84.4 billion yuan, up 17% year-on-year.

This is Tencent’s first quantified disclosure on AI investment.

J.P. Morgan’s clear interpretation: Through this disclosure, management “turned the mainstream pessimistic narrative on AI's dilution effect from a storytelling issue into a sizable, auditable profit and loss statement item”. In other words, the cost of AI is now quantifiable, rather than a vague concern.

The bank also noted that Tencent’s organic business fundamentals are actually healthier than the overall data suggests, and AI investment is “paced and self-funded”—with this quarter’s free cash flow at 56.7 billion yuan, easily covering 37 billion yuan in capital expenditures and 7.9 billion yuan in buybacks, with net cash increasing quarter-on-quarter to 146.9 billion yuan.

Advertising was the brightest segment this quarter. Marketing services revenue increased 20% year-on-year to 38.2 billion yuan, accelerating from last quarter’s 17%. Bloomberg Intelligence analyst Robert Lea wrote: “Operating expenses below expectations offset weakness in game sales. AI targeting enabled ad revenue to grow 19.8% for the year, which is impressive for a company of this size.”

Citigroup stated the company’s marketing services revenue grew 20% above expectations, with enterprise services revenue up 20% year-on-year, mainly driven by domestic and overseas cloud demand and AI-related services.

Gaming: Domestic game revenue increased 6% year-on-year, seemingly moderate, but management explained it was mainly affected by Spring Festival scheduling, and actual gross billings still grew at double digits year-on-year. Honor of Kings, Peacekeeper Elite, and Delta Force posted record quarterly gross billings. International game revenue increased 13% year-on-year to 18.8 billion yuan.

Capital expenditure: Tencent’s capex this quarter was 31.9 billion yuan, up 16% year-on-year and about 63% quarter-on-quarter, mainly for AI infrastructure construction. Net cash at period end increased nearly 40 billion yuan quarter-on-quarter to 146.9 billion yuan.

AI product progress: Tencent’s reorganized AI team released the Hunyuan 3 preview LLM at quarter end, which since April 28 has become one of the most-used models on the OpenRouter platform by Token consumption. Management stated Hunyuan 3’s internal Token calls increased tenfold over the previous generation, and it’s integrated with 131 products. Efficiency AI agent WorkBuddy ranks among the top in daily active users among similar domestic services.

On May 13, at Tencent's shareholders’ meeting, Board Chairman and CEO Pony Ma candidly described the company’s twists and turns in the AI field and humorously illustrated the current situation: they have boarded the ship, but haven't yet sat steady.

He said: “A year ago, we thought we’d boarded the ship, later realized the ship was leaking. Now it feels like we’re standing on it but can’t sit yet, still hoping it goes faster.”

Wall Street’s view: Polarized, with different emphases

J.P. Morgan's assessment of both companies is clear in logic but focuses on different points.

For Alibaba, analyst Yao Cheng’s team stated that this quarter’s performance “consolidated rather than undermined” prior assessment—external cloud business revenue growth accelerated to 40%, AI income reached 9 billion yuan, profit margin is up 110 basis points year-on-year, these are positive signals.

Analysts expect consensus earnings projections for Alibaba in FY2027 to be significantly revised down, and predict a negative share price reaction to earnings—but in reality the stock surged 8%, showing that the weighting of AI commercialization prospects in market pricing now outweighs short-term profits.

For Tencent, analysts say their “view has become more optimistic.” The research report argues that Tencent’s core engines (WeChat ecosystem, advertising, and gaming) remain resilient, and that the AI story now has more influence on share price direction than earnings improvement. Currently, “AI weighting is low” in Tencent’s share price, and if it can show clear execution and product-market fit in 2026, there’s room for upside.

On ratings, J.P. Morgan maintains an “overweight” rating for Alibaba U.S. shares, target $200; for Tencent, “overweight”, target HK$690. Citigroup maintains “buy” for Alibaba U.S. shares, target raised to $205; “buy” for Tencent, target HK$783.

Common pressure: Spending on AI is easy, monetizing is hard

According to market analysis, the financial reports of both companies reveal a reality: China’s biggest tech firms are working hard to turn their AI investment into new income, having already invested tens of billions of dollars in data centers, research, and talent.

Alibaba has promised to invest about 380 billion yuan (about $56 billion) in AI over the next three years, one of the largest among Chinese tech companies. Tencent President Martin Lau previously said that 2026’s planned spending on new AI products will be at least double the 18 billion yuan in 2025.

Meanwhile, both companies face external competition in their core businesses. Alibaba is battling Meituan and JD.com in the instant retail sector, where subsidies and discounts are eroding profit margins; Tencent is competing with ByteDance for users’ time, though its advertising business remains strong.

On the AI model front, both also face competition from pure AI firms such as Moonshot and MiniMax—whose valuations have surged since listing in January this year, drawing investor attention away from the traditional internet giants.

All-weather Technology wrote that after Tencent’s Hunyuan 3 preview model went live, it quickly became No. 1 in usage on OpenRouter, with internal Token calls ten times that of the previous generation, and integrated with 131 products. Alibaba plans to list its chip manufacturing subsidiary Pingtouge separately to seize investor interest in local chips versus Nvidia—Pingtouge’s self-developed GPU has achieved scale production, and over 60% of computing power serves external commercial clients.

The market’s judgment: The sacrifice of short-term profit buys a ticket to the AI era. As for what that ticket is ultimately worth, the answer is still on the way.

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