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Iris Deng

Alibaba Group Holding and Tencent Holdings are doubling down on a massive artificial intelligence spending spree, betting that a new wave of Chinese-made chips will break the supply bottlenecks stifling their ambitions.
While both Chinese tech giants saw revenues trail expectations this past quarter, they pledged an aggressive acceleration in capital expenditure, as home-grown silicon from Huawei Technologies and Alibaba’s in-house labs begins to reach scale.
Alibaba was likely to “overshoot” its original capex target of 380 billion yuan (US$56 billion) over three years, to fund the investment required for the buildout of AI data centres, CEO Eddie Wu Yongming told analysts on Wednesday. The company said its March quarter capex reached 27 billion yuan, slightly down from the previous quarter’s 29 billion yuan.
Meanwhile, Tencent reported a sharper surge, with first-quarter capex reaching 31.9 billion yuan – up 63 per cent from the previous quarter.
Tencent’s chief strategy officer James Mitchell further pledged “a substantial increase” in 2026 capex, especially in the second half, as more China-designed AI chips become available. Goldman Sachs forecast Tencent’s capex to hit 165 billion yuan in 2027, more than double its 2025 levels.

The surge comes as both companies are grappling with a global shortage of AI chips. “I can tell you that today there isn’t a single card on our service that is idle,” Alibaba’s Wu said on Wednesday.
“[Alibaba’s] cloud is currently supply-constrained … meaning realised growth is a function of capex pace, not demand,” Alex Yao, head of China equity research at JP Morgan, wrote in a research note on Thursday.
Consequently, Tencent said it was prioritising internal demand for its Hy model and video gaming over external services. However, as domestic supply ramps up, the company expected to release more capacity to cloud clients, driving growth, Mitchell said.
Chinese tech giants including Alibaba, Tencent and ByteDance are snatching up Huawei’s latest AI processor, the home-grown Ascend 950PR, which entered mass production in April, according to Reuters, citing anonymous sources.
At the same time, Alibaba was scaling production of its proprietary T-Head graphics processing units, with 60 per cent of that capacity already serving external customers, according to Wu. “The new chips will certainly contribute very significantly to gross margin expansion.”
The heavy spending comes at a cost.
Alibaba, owner of the South China Morning Post, saw its adjusted Ebitda plunge 84 per cent year on year, dragged by heavy AI investments.
However, early returns are surfacing: Alibaba saw triple-digit growth in quarterly AI product revenue, while Tencent attributed a 20 per cent revenue jump in marketing services to AI-driven ad tech.
The arms race extends beyond these two. ByteDance is boosting its planned capex to over 200 billion yuan, with a significant allocation for domestic chips, the SCMP reported last week.

Meanwhile, the industry remains hopeful for high-end imports. Nvidia CEO Jensen Huang is currently in China as part of a US presidential delegation, seeking a breakthrough in approval for Nvidia’s H200 chips to be sold to Chinese customers.
Alibaba and Tencent did not immediately respond to requests for comment on a Reuters report on Thursday that Washington had given Nvidia the green light to sell to 10 Chinese firms, including Alibaba and Tencent.
Despite the aggressive ramp-up, China’s AI investment remains a fraction of the West’s. While Chinese giants collectively spent 400 billion yuan last year, according to a report from UBS analyst Wei Xiong, US peers like Google and Microsoft were forecasting annual capex of about US$190 billion, while Meta Platforms raised its estimates to US$145 billion.
Additional reporting by Ann Cao


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Alibaba will focus its AI capex on cloud services, while Tencent is prioritising internal demand with its spending


Alibaba will focus its AI capex on cloud services, while Tencent is prioritising internal demand with its spending.


Alibaba, Tencent present a tale of two strategies for AI spending

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Alibaba will focus its AI capex on cloud services, while Tencent is prioritising internal demand with its spending

Alibaba will focus its AI capex on cloud services, while Tencent is prioritising internal demand with its spending