Gary Yu

Gary Yu at Morgan Stanley inquired about the growth outlook for Alibaba's cloud business, specifically whether acceleration is expected to continue, and the key drivers for external revenue growth in China given the unique market landscape.

Answer

CEO Eddie Wu confirmed strong and accelerating customer demand for AI, which is currently outpacing server deployment. He highlighted that demand stems from all aspects of enterprise operations, driving compute needs for model training and inference, and expressed strong conviction in future AI demand growth from real-world use cases.

Gary Yu at Morgan Stanley inquired about the growth outlook for Alibaba's cloud business, specifically whether acceleration is expected to continue, and the key drivers for external revenue growth in China given the unique market landscape.

Answer

CEO Eddie Wu confirmed strong and accelerating customer demand for AI, which is currently outpacing server deployment. He highlighted that demand stems from all aspects of enterprise operations, driving compute needs for model training and inference, and expressed strong conviction in future AI demand growth from real-world use cases.

Gary Yu from Morgan Stanley questioned the return on invested capital for the substantial investment in QuickCommerce and asked how the company prioritizes capital allocation between its retail and AI initiatives.

Answer

Alibaba Management positioned AI and consumption (including instant commerce) as two historic, parallel opportunities that both require large-scale investment. They assured that the company has sufficient resources, including cash reserves and cash flow, to fund both initiatives. The current priority is on balancing short-term and long-term returns, with a focus on capturing growth over immediate profitability. Management noted that AI investments are already boosting cloud growth, while QuickCommerce is driving traffic and ad revenue for the core commerce platform, indicating a path to strong future returns.

Gary Yu inquired about Alibaba Cloud's monetization progress in the AI era, asking if enterprises are now more willing to move to the cloud due to AI and what types of companies are leading this trend. He also asked for a multi-year outlook on how AI applications will enhance market share and monetization within the e-commerce business.

Answer

CEO Yongming Wu confirmed that AI is a primary driver for the cloud's 18% revenue growth, with AI-related demand seeing triple-digit growth for seven consecutive quarters. He noted that traditional industries like animal farming and manufacturing are now adopting cloud and AI, moving from offline systems. Fan Jiang, CEO of Alibaba e-commerce Business Group, added that AI is enhancing user experience in search and recommendations, improving merchant efficiency, and will eventually create new forms of customer interaction on Taobao and Tmall.

Gary Yu asked about the monetization progress of AI within the cloud business, seeking details on the types of enterprises driving this adoption and requesting guidance for cloud service revenue in fiscal 2026. He also inquired about the long-term impact of AI applications on the e-commerce business, specifically regarding potential market share gains and new monetization opportunities.

Answer

CEO Yongming (Eddie) Wu stated that AI-related demand has driven triple-digit growth in the cloud business for seven consecutive quarters, with adoption expanding from internet-native companies to traditional industries like manufacturing and animal husbandry, which provides strong confidence for continued revenue growth. Jianfeng (Fan Jiang), CEO of Taobao and Tmall Group, added that in e-commerce, AI is currently focused on enhancing user experience in search and recommendations, improving merchant efficiency, and will eventually create new forms of customer interaction.

Gary Yu asked if the full-quarter impact of the new software service fee could lead to CMR growing faster than GMV, and also inquired about the return on investment for the heavy CapEx spending on AI infrastructure.

Answer

Executive Toby Xu responded that while the service fee is a positive driver for the take rate, it is offset by investment in fast-growing but low-monetization new models. Executive Yongming Wu added that aggressive CapEx in AI is justified by explosive short-term demand and the view that Generative AI is a historic, long-term opportunity, with high certainty of future demand for inferencing.

Gary Yu requested more detail on the 1-2 year breakeven target for loss-making businesses, asking for specific timelines for segments like Local Services, AIDC, and other retail businesses.

Answer

CFO Toby Xu clarified the breakeven target applies to businesses outside the core segments. He explained the strategy involves enhancing monetization and improving investment efficiency, citing Local Services and Lazada as examples where improving unit economics is significantly reducing losses. He did not provide individual timelines but reiterated the general 1-2 year goal for most of these businesses to reach breakeven.

Gary Yu of Morgan Stanley asked about Alibaba's AI monetization strategy beyond cloud infrastructure, focusing on the enterprise software layer, and inquired about CapEx allocation and contingency plans for chip export controls.

Answer

CEO Yongming Wu explained that on the enterprise (2B) side, SaaS will become more AI agent-driven, with DingTalk being a key example. He stated that AI will reshape all corporate applications. Regarding CapEx, Wu declined to provide a detailed breakdown of chip allocation but asserted that the cloud infrastructure is designed to be compatible with a wide range of chips, ensuring that future policy changes will not affect their investment plans.

Gary Yu sought insights into the growth outlook and profitability of Baidu's new AI-powered businesses, and how these categories are expected to accelerate overall revenue growth.

Answer

CFO Henry Haijian He introduced Baidu's new AI-native view, categorizing AI-powered assets into AI Cloud infra, AI applications, and AI-native marketing services. He reported AI Cloud infra revenue of RMB 4.2 billion (up 33% YoY), AI applications revenue of RMB 2.6 billion, and AI-native marketing services revenue of RMB 2.8 billion (up 262% YoY, accounting for 18% of Baidu Core's online marketing revenue). He emphasized the reinforcing nature of these businesses, expecting accelerating growth, rising penetration, and improved margins as utilization increases, ultimately supporting a stronger overall growth trajectory for Baidu.

Gary Yu asked for more details on the growth outlook and profitability of Baidu's new AI-powered businesses and how these categories are expected to accelerate overall revenue growth.

Answer

CFO Henry Haijian He introduced a new AI-native view for greater transparency, categorizing AI-empowered assets into AI Cloud infra, AI applications, and AI-native marketing services. He highlighted AI Cloud infra's sustainable revenue and improving margins, AI applications' high-quality subscription-based revenue, and AI-native marketing services' rapid growth (262% YoY, reaching 18% of Baidu Core's online marketing revenue). He expressed confidence in the revenue and profitability potential of these interconnected businesses to drive stronger overall growth.

Gary Yu of Morgan Stanley requested a breakdown of the AI Cloud business, asking about the revenue mix between subscription and project-based models and the margin profile's evolution in the near and long term.

Answer

EVP Dou Shen reported that AI Cloud revenue grew 27% YoY to RMB 6.5 billion, with subscription-based revenue now accounting for over half of the enterprise cloud total. He noted a strategic plan to reduce project-based revenue. The segment achieved YoY growth in non-GAAP operating profit, with potential for long-term margin improvement.

Gary Yu from Morgan Stanley asked about the evolving competitive landscape for Robotaxis, the differentiation of Baidu's RT6 vehicle, potential partnerships similar to peers, expansion plans for Apollo Go, and the targeted scale, unit economics, and long-term profitability.

Answer

CEO Yanhong Li positioned Apollo Go as a global leader, emphasizing that the RT6 is the world's only purpose-built, mass-produced Level 4 autonomous vehicle with a unit cost under $30,000. He confirmed global expansion to 15 cities and an open stance on partnerships, citing the recent agreement with CAR Inc. Li expressed confidence in a clear path to profitability driven by falling costs and increasing scale, viewing Apollo Go as a key long-term growth driver for Baidu.

Gary Yu of Morgan Stanley asked about the evolving competitive landscape for Robotaxi, the differentiation of Baidu's RT6 vehicle, the company's partnership strategy, and its long-term targets for scale and profitability.

Answer

CEO Yanhong Li positioned Apollo Go as a global leader, emphasizing that its RT6 is the world's only purpose-built, mass-produced Level 4 autonomous vehicle with a unit cost under $30,000. He confirmed an open expansion strategy, with a global footprint now spanning 15 cities. Li noted that Baidu is actively pursuing partnerships, citing the recent agreement with CAR Inc., and sees a clear path to profitability as hardware costs fall and operational scale increases.

Gary Yu asked about the expected trajectory for the AI Cloud business in 2025, covering both revenue and profitability. He also inquired about the main growth drivers and the overall outlook for enterprise cloud demand and AI-driven opportunities.

Answer

EVP Dou Shen highlighted the strong 26% year-over-year revenue growth in Q4 and expects the momentum to continue in 2025, driven by rising demand for ERNIE and AI infrastructure. He expressed confidence that the AI Cloud business will maintain strong revenue growth while continuing to generate positive operating profit, fueled by broader enterprise adoption as model performance improves and costs decline.

Gary Yu from Morgan Stanley asked for an update on underlying advertising demand trends, whether management has observed improved sentiment from recent stimulus policies, and the macro outlook for 2025.

Answer

An executive responded that Baidu's advertising business, heavily tied to SMEs, continues to see weakness in verticals like real estate, franchising, and healthcare. Management has not yet observed a notable improvement in advertiser spending, but remains 'conservatively optimistic' that recent stimulus policies will eventually boost SME confidence and lead to a meaningful recovery in ad spending.