China's AI: Second Phase Underway?

The emergence of large-scale models in artificial intelligence (AI) has sparked significant changes in the way major companies operateAs we navigate through 2024, the landscape around China's prominent internet companies, particularly Alibaba, ByteDance, Tencent, and Baidu, is rapidly evolving, signaling a new era in the tech industryThe dynamics of the market appear to be shifting, with instances of various companies capitalizing on the advancements brought by technologies such as DeepSeek.

Against a backdrop of fluctuating stock performances for Chinese firms on US markets, Alibaba's stock price has surged by 14% this year, showcasing the capital market's renewed confidence in the companyNot to be overlooked, Alibaba made it onto the esteemed list of "World's Most Admired Companies" for 2025, remarkably ranking third in the internet services and retail subcategories, just behind industry giants Amazon and Alphabet, Google's parent companyThis recognition underscores Alibaba's resilience and strategic positioning in an increasingly competitive environment.

The integration of DeepSeek has been heralded as a catalyst for transformation, often described as having a "catfish effect," which refers to how new market entrants can invigorate existing playersSeveral leading enterprises, including Alibaba, have deepened their engagement with DeepSeek’s capabilitiesFor instance, on February 6, Alibaba's DingTalk announced the full integration of an AI assistant powered by the DeepSeek series of models, allowing users to choose from options like R1 and V3 when creating AI assistantsThis integration signifies a move towards democratizing AI technology, making it more accessible for everyday users and enhancing productivity.

Shortly after, ByteDance's Feishu (Lark), a collaborative workplace application, followed suit by announcing full support for DeepSeek R1 in its intelligent partner creation platformThis swift adoption illustrates how AI models are shaping workplace applications and catering to the varied needs of businesses

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In a similar vein, on February 13, Tencent unveiled that its AI assistant technology would support multiple models, including DeepSeek, amplifying its reach to millions of users through the WeChat ecosystem, which boasts an impressive monthly active user count of nearly 1.4 billion.

Moreover, by February 16, Baidu announced that both its search engine and the Wenxin intelligent agent platform would integrate DeepSeek's advanced search functionalities, enabling users to access comprehensive and detailed responsesThe widespread integration of DeepSeek across major tech firms emphasizes the urgency and necessity of adopting AI technologies in enhancing user experience, efficiency, and overall digital transformation across industries.

As noted by Zhu Yan, the director of Tsinghua University's Internet Industry Research Institute, "Artificial intelligence is entering a more rapid phase of developmentThe technical trajectory represented by DeepSeek is further driving down the costs of AI applications, which could spur more enterprises and institutions to deploy large models, accelerating the pervasive adoption of AI across all sectors." This insight highlights the transformative potential of AI, particularly in terms of accessibility and scalability in business operations.

Industry investor Shi Baogang emphasized that the coalition of leading internet companies with hundreds of millions of monthly active users accelerates the advancement of the AI industry as a wholeThe presence of giant players like Alibaba, WeChat, ByteDance, and Baidu – each boasting user bases in the hundreds of millions – suggests that AI technologies will soon become commonplace, reshaping industries and driving innovation to unprecedented levels.

The evolution of large models in AI appears to favor the proliferation of free foundational functionalities, establishing a trend where usage-based billing becomes the norm for business needsHowever, developers and providers remain cautious of regulatory hurdles, safety audits, and data traceability requirements that could impose additional costs

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This reality suggests that while foundational functionalities might be tentatively "free," detailed, business-specific applications could still represent a significant revenue stream for tech giants who navigate these complexities.

Considering Alibaba's historical peaks, its market value reached $752 billion at one pointHowever, it has since experienced a precipitous decline, losing over $350 billion in market capitalizationAlthough Alibaba still holds a stronger position compared to competitors like JD and Pinduoduo, the acceleration of AI developments could precipitate a reevaluation of its market valueThe introduction of Alibaba's Tongyi model marks its early endeavors in the AI landscape, with impressive rankings showcasing its capabilities within the broader global AI context.

Delving into Alibaba Cloud, a core pillar of Alibaba's broader business strategy, we find that it plays a crucial role in its growth trajectoryBy providing infrastructure solutions like elastic computing and databases, Alibaba Cloud facilitates rapid business scalability and innovationWith over 30% of the Chinese cloud market share, Alibaba Cloud stands as a dominant force among its rivals worldwide, including being the third-largest global public cloud provider after AWS and Azure.

Going forward, Alibaba Cloud's rapid growth can be attributed to its commitment to technological innovation and expansion across industries and geographiesThese developments foster digital transformation within China and showcase a robust competitive edge on the global stageAs Alibaba navigates its way towards future growth, its value could see significant reevaluation as a consequence of both market habits and its advancements in AI.

Tencent is also poised for a valuation recalibration analogous to that of AlibabaIts cloud offerings mirror Alibaba's and hold the potential to drive similar growth ratesCurrently, Tencent Cloud constitutes roughly 5% of Tencent's overall market value, indicating ample room for expansion