Alibaba shares jump as Apple selects Qwen for China AI launch

A strategic partnership for China

Alibaba shares surged 6% following the announcement that Apple will launch its AI features in China this December. The company will use Alibaba’s Qwen model to power these capabilities, marking a significant milestone for Chinese artificial intelligence. This news comes as Apple seeks to expand its footprint in the region's tech landscape.

The partnership is particularly notable because it gives Qwen immediate access to a massive audience of Chinese iPhone users. By integrating the model into the existing ecosystem, Alibaba can reach consumers without the heavy lifting of independent marketing. As TIKR.com reported, this deal allows the model to reach users for next to nothing compared to traditional growth methods.

For Apple, the move is a strategic necessity to remain competitive against local rivals. The company is looking to close a feature gap with Huawei, which has been a dominant force in the Chinese market. This integration ensures that Apple Intelligence remains relevant to users who demand high-quality, locally compliant AI tools.

The cost of building AI

While the partnership is a win for reach, Alibaba still faces significant hurdles in making its AI division profitable. The company's AI Labs and Applications segment reported an adjusted EBITA loss of RMB 13.9 billion during the June quarter. Much of this loss was attributed to the costs of marketing the standalone Qwen app to the public.

The move to a Qwen button inside Siri represents a shift in how the company intends to scale. By piggybacking on Apple's infrastructure, Alibaba can potentially lower the costs associated with user acquisition. This is a critical transition for a company that has seen its free cash flow turn negative in five of the last six quarters.

Analysts are watching how these costs will normalize over the coming years. Some estimates suggest that normalized earnings per ADS could climb back to fiscal 2024 levels by fiscal 2028. The success of the Apple deal will be a major factor in determining whether the AI division can eventually turn a profit.

Market reactions and policy

The rally in Alibaba's stock was not entirely isolated to the Apple news. Other major Chinese tech firms, including JD.com and PDD Holdings, also saw gains during the trading session. These gains were largely attributed to reports that Chinese regulators met with banks and brokerages to support the domestic market.

JD.com and PDD Holdings did not receive any direct benefits from the Apple-Alibaba deal, making their rise a matter of policy sentiment. However, the broader market support suggests a stabilizing environment for Chinese tech giants. Despite the rally, some analysts remain cautious about the growth rates of these specific companies.

For instance, JD.com saw a revenue decline of 2.9% in the June quarter, while PDD’s online marketing revenue grew by only 3%. Investors are looking for more concrete evidence of sales picking up in upcoming November reports before committing to the current rally. The market remains sensitive to both regulatory signals and actual revenue growth.

Looking ahead to the launch

The upcoming December launch will be a major test for both Alibaba and Apple. Because the new Siri is not part of the first wave of features, it will take some time to see how many users actually interact with Qwen. The company will need to monitor engagement levels to see if the integration translates into long-term value.

For Alibaba, the primary goal is to see the losses in its AI Labs segment begin to shrink. The company needs to prove that its heavy investment in AI can eventually yield a positive return on investment. The Apple partnership is a major step toward that goal by providing a high-volume distribution channel.

Investors will be looking for the late-November reports to see if the AI spending is becoming more efficient. If Alibaba can successfully leverage its partnership with Apple to reduce marketing spend, it could improve its cash flow position. The next several months will be critical in determining the long-term viability of the Qwen model's commercial strategy.