ByteDance is mounting a direct challenge to Alibaba Group Holding Limited (NYSE:BABA) in China’s cloud market, leveraging its AI firepower, deep data reserves, and aggressive pricing to disrupt a sector long dominated by established tech giants.
The owner of TikTok has been rapidly expanding beyond its consumer-facing apps, scaling its enterprise cloud unit, Volcano Engine, as part of a broader diversification strategy. People familiar with the matter told the Financial Times that ByteDance has accelerated hiring across its sales teams while undercutting rivals on pricing to win corporate clients.
AI-Led Strategy Gains Traction
ByteDance is pitching enterprises on AI-driven cloud services that draw on its proprietary models, extensive data sets, and computing infrastructure, including custom-built AI agents. That approach is beginning to reshape a market historically dominated by Alibaba, Tencent Holding Ltd. (OTC:TCEHY), and Huawei.
According to IDC, Volcano Engine has become China’s second-largest provider of AI infrastructure and software, trailing only Alibaba. ByteDance captured nearly 13% of China’s AI cloud services revenue, estimated at about $390 million, in the first half of 2025, compared with Alibaba’s 23%. While ByteDance holds roughly 3% of the broader cloud market, analysts note its momentum in AI services, the sector’s fastest-growing segment. Forrester analyst Charlie Dai said the company’s AI-centric strategy positions it well as demand accelerates.
Alibaba Cloud Anchors Growth Outlook
Alibaba Cloud continues to play a central role in Alibaba’s value creation. The Cloud Intelligence Group posted a 34% revenue increase to $5.59 billion in the fiscal second quarter, driven by public cloud demand and rapid AI adoption. The company has expanded its full-stack AI offerings, pairing advanced models with high-performance infrastructure.
Open-source AI sits at the core of Alibaba’s 2025 strategy, with swift uptake of its Qwen models. After Qwen surpassed 700 million downloads, Alibaba shares rose as investors anticipated stronger cloud usage rather than direct model monetization. HSBC analyst Charlene Liu said cloud revenue growth should persist as long as AI-related demand remains robust.
Alibaba stock has gained more than 94% over the past 12 months.
BABA Price Action: Alibaba shares were down 1.87% at $162.31 during premarket trading on Tuesday, according to Benzinga Pro data.
Photo by Tang Yan Song via Shutterstock
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