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Alibaba HK shares dip as cloud unit slashes prices to fuel AI growth

February 29, 2024 4:51 AM EST

Investing.com-- Alibaba Group's (NYSE: BABA) Hong Kong shares fell on Thursday after the firm’s cloud unit slashed prices across most of its products, citing plans to increase access to artificial intelligence development in China.

Alibaba’s Hong Kong shares (HK:9988) fell 2.3% to HK$72.55, lagging 0.1% decline in the broader Hang Seng index.

The firm’s cloud unit cut prices by an average 20% across over 100 products, with some products seeing reductions of as much as 55%. The move is Alibaba’s second major pricing change in its cloud unit in the past two years.

Alibaba said the price cuts were aimed at allowing wider access to AI development in China and Asia. Recent studies showed the cloud industry stood to benefit greatly from increased AI demand, given that it helps provide the massive computing and storage requirements needed by generative AI (GenAI).

GenAI is expected to boom in the coming years, potentially fueling increased investment in technology- a trend that could benefit Alibaba’s cloud unit, which has been struggling in recent years.

Thursday’s price cuts also come as revenue from the cloud unit largely stagnated over the past two years, amid cut-throat competition from rivals Tencent Holdings Ltd (HK:0700) and Baidu (NASDAQ: BIDU), and slowing investment in technology as global interest rates rose.

Alibaba had scuttled a planned spin-off and public listing of the cloud unit last year, amid dwindling revenue. Thursday's price cuts herald more earnings pressure on the unit.

Still, the cloud unit is at the heart of Alibaba’s AI efforts, having launched its own GenAI model, Tongyi Qianwen, in 2023.


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