How much additional capital expenditure will Alibaba have? Morgan Stanley estimates "an increase of 3GW per year," UBS says "1-2GW," and each 1GW is roughly equivalent to 100 billion RMB in capital investment.

How much additional capital expenditure will Alibaba have? Morgan Stanley estimates "an increase of 3GW per year," UBS says "1-2GW," and each 1GW is roughly equivalent to 100 billion RMB in capital investment.

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The production capacity roadmap revealed by Alibaba Cloud at the Yunqi Conference signals a massive transformation at an industry scale.

As previously mentioned by Wallstreetcn, Alibaba CEO Wu Yongming sent out highly positive signals during the conference. Wu Yongming revealed that model token usage doubles every two to three months, demonstrating explosive growth in AI demand.

He also stated that the company plans to make additional investments on top of the planned 380 billion RMB investment over the next three years, further strengthening its computing power infrastructure. Wu Yongming also expects that by 2032, the power consumption of Alibaba Cloud’s global data centers will increase tenfold compared to 2022.

On September 24, Morgan Stanley projected in a recent research report that Alibaba Cloud will add more than 3 gigawatts of new data center capacity every year between 2026 and 2032, which is nearly equivalent to the total new capacity of the entire Chinese market in 2025. This will provide continuous and strong growth momentum for infrastructure providers such as data center operators.

UBS considers Alibaba Cloud’s investment intensity and continuity guidance “beyond market expectations.” UBS estimates that Alibaba Cloud may expand its data center capacity at a pace of 1–2 GW per year, which could translate into an incremental capital investment of up to 100–200 billion RMB annually.

Ten-Year Roadmap: Adding a “China Market” Every Year

Morgan Stanley stated that global data center power consumption is expected to reach ten times the 2022 level by 2033. This macro trend provides the backdrop for large-scale expansion by cloud providers.

Morgan Stanley’s report details the path of Alibaba Cloud’s expansion: Taking the 2022 capacity of about 2.5 GW as the baseline, reaching the 25 GW target in ten years means that its investment intensity will remain high for the foreseeable future. The firm expects that by 2026, Alibaba Cloud’s capacity will reach about 5 GW, and from 2026 to 2032, the annual new capacity will exceed 3 GW.

Morgan Stanley points out that this means, during the seven years from 2026 to 2032, Alibaba Cloud will need to add more than 3 GW of new capacity each year, which is “almost equivalent to our forecasted 3–4 GW of new capacity for the entire Chinese market in 2025.”

This indicates that the capital expenditure of Alibaba Cloud alone is enough to support the growth of the data center industry for years to come.

Based on the analysis above, Morgan Stanley holds a positive outlook for the data center industry, believing that robust token usage growth, increased capital expenditures from cloud providers, and surging power demand all constitute direct positives.

The report reiterates its “Overweight” rating on data center operators GDS and VNET, viewing them as “key beneficiaries” of Alibaba Cloud’s sustained high-intensity investment.

On the other hand, the report also warns of disruptive risks brought by AI. As AI-native applications become mainstream, the trend of “AI eats software” may have a negative impact on traditional enterprise software companies.

Investment Intensity Exceeds Expectations, Annual New Capital Expenditure Could Reach Trillion RMB Level

UBS converted Alibaba Cloud’s targets into specific capital expenditure estimates in its report. The bank’s analysts calculated as follows:

First, UBS estimates that Alibaba Cloud’s total data center capacity (IT load) in 2022 will be about 1.5 GW. If this is the baseline, a tenfold increase in ten years means total capacity will reach 15 GW, i.e., a net increase of about 13 GW. This is roughly equivalent to an average annual net increase of at least 1–2 GW in the next ten years. The report also notes that if we consider improvements in power usage effectiveness (PUE), the actual new capacity demand may be higher.

Second, UBS ties its capacity growth forecasts to capital investment. According to UBS, every 1 GW of data center demand, if all used for AI, requires about 100 billion RMB in IT equipment capital expenditure. Based on this, 1–2 GW of new capacity per year directly corresponds to an incremental capital expenditure of at least 100–200 billion RMB annually.

UBS believes this estimate is significantly higher than current market expectations and challenges doubts about the sustainability of the AI capex cycle and the intensity of hyper-scale operators’ capital spending.

This article comes from WeChat official account “Hard AI”. For more leading AI news, please visit here

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