Alibaba Jettisons Cloud Spin-Off Amid Focus on AI

Chinese tech giant Alibaba says it will not spin off its cloud intelligence business.

The decision, announced Thursday (Nov. 16) along with the company’s quarterly earnings, is apparently the result of the U.S. government’s restrictions on cloud and artificial intelligence (AI) technology imports to China.

“Given the uncertainties in the current environment, following evaluation, we have decided not to pursue a full spin-off of Cloud Intelligence Group,” said CEO Eddie Wu.

“Alibaba Group will continue to invest strategically in Cloud Intelligence Group in the long-term. At the same time, Cloud Intelligence Group will continue to maintain its independent operation to be managed by its CEO and overseen by its Board.”

The White House announced last month it would halt shipments of advanced artificial intelligence chips, designed by companies like Nvidia, to China in a move designed to reduce Beijing’s access to cutting-edge U.S. technologies and enhance its military capabilities.

With that in mind, Alibaba Chairman Joe Tsai told analysts that the company will instead focus on “developing a sustainable growth model based on emerging AI-driven demand for networked and highly scaled cloud computing services.”

Wu added that this quarter had seen the AI boom create growing demand for computing power and large model services.

“Cloud computing is the infrastructure of the digital economy,” he said. “It’s a business model that achieves network effects with computing resources and a service model that features both network effects and scale effects.”

As the AI era continues, Wu said, IT investment will “grow exponentially and demand for cloud computing will expand exponentially as well, creating a huge incremental opportunity.”

The CEO had said during September’s earnings call that the disruptions brought on by AI will represent “the most significant change agent” in the next 10 years across all industries.

To underline its commitment to AI, Alibaba has spoken of plans to make strategic investments in AI-driven tech businesses, internet platforms and its global commerce network.

This quarter’s earnings showed Alibaba’s cloud business revenues increasing 2% in the quarter, with company-wide revenue up 9% year over year. The cloud unit is China’s largest cloud provider, and had been set to be spun off as part of a wider company restructuring.

Alibaba announced in March that it would become a holding company and divide its various units into six different businesses, focused on areas like cloud, media and logistics.