Investors in Alibaba reacted sharply after a report emerged over the weekend about a potential U.S. government investigation into Apple’s plan to use Alibaba’s artificial intelligence (AI) to enhance its smartphone assistants in China, its second-largest market by sales. U.S. officials are concerned that such a move could help Alibaba strengthen its AI capabilities, while also increasing Apple’s exposure to China’s censorship laws and data-sharing regulations.
This revelation has sparked anxiety among market watchers, who are particularly worried about the implications of deeper collaboration between a major U.S. company and a Chinese tech giant. The concerns are compounded by ongoing trade tensions between the U.S. and China, which have led to a complex backdrop of tariffs and policy changes. Dickie Wong, an executive director at Kingston Securities in Hong Kong, pointed out that Alibaba’s collaboration with Apple and the broader issues of small parcel tariffs have become contentious in this environment.
In addition to these geopolitical tensions, Alibaba is facing its own set of challenges. The company’s financial results for the March quarter missed market expectations, despite reporting a significant surge in net income due to changes in the value of its equity investments. According to a New York Times article, Total sales grew by 7% year-on-year, amounting to 236.4 billion yuan ($32.6 billion), but profit margins may fluctuate as Alibaba continues to invest in its on-demand delivery services, a segment which promises to deliver items within an hour of ordering.
Despite this, Alibaba’s investors had hoped for higher growth in its cloud computing unit, where sales grew by 18% to 30.1 billion yuan. Analysts, however, had expected stronger performance, particularly in the cloud sector, as the rapid advances in China’s AI technology are seen as key to driving more use of Alibaba’s services for data crunching and storage.
While the controversy surrounding Alibaba and Apple’s potential AI collaboration raises red flags, the company’s struggles in meeting investor expectations highlight the broader pressures faced by Chinese tech giants. With geopolitical tensions and ongoing economic uncertainties, Alibaba’s future growth prospects remain under scrutiny as it navigates a rapidly evolving global market.
