One stock that has not done so well lately is Alibaba Group Holding Ltd. (BABA, Financial). A former favorite of those looking to invest in Chinese companies, the e-commerce giant is struggling as investors look to other opportunities.
However, the company is not taking this lying down. Instead, its focus has shifted to artificial intelligence initiatives to power its results in the coming years.
Moreover, Alibaba's reorganization opens up a world of opportunities. The company's impending division into six separate entities will result in distinct businesses, leading to a more focused approach when tackling different sectors.
When you combine the two factors, it looks like Alibaba is heading for some excellent times.
Alibaba ventures into generative AI
The rapid acceleration of interest in the generative artificial intelligence sector has spurred leading Chinese technology companies to delve into this innovative field. Following Alphabet (GOOG, Financial) and Microsoft's (MSFT, Financial) lead, who recently divulged plans to bolster their search engine technologies, Baidu (BIDU, Financial) – often dubbed "China's Google" – has also announced its foray into this domain.
Baidu launched Ernie Bot, while Alibaba has unveiled Tongyi Qianwen in China. These advancements highlight the efforts of major technology companies to leverage AI capabilities in developing chatbot systems.
According to a press release, Tongyi Qianwen, Alibaba's answer to ChatGPT, is a large language model and will be integrated across various business functions.
In addition, the e-commerce titan recently unveiled Tongyi Wanxiang, an AI-fueled tool crafted to fabricate images rooted in user instructions. This tool empowers its users to embark on creative journeys, utilizing it to conjure striking visual imagery.
The tool, a brainchild of Alibaba's cloud division, is presently open for beta testing to enterprise customers within China. Tongyi Wanxiang embodies the company's newest endeavor in generative AI, positioning it among the competitive ranks of other tech behemoths in China and the United States.
Generative AI is a distinct strain of artificial intelligence that harnesses copious amounts of training data to spawn content in response to user prompts. This tech phenomenon paves the way for the birth of innovative and novel content by capitalizing on its training to yield outputs resonating with the original input.
The release of Tongyi Wanxiang is a strategic move to amplify access to superior generative AI imagery. This enterprise aims to nourish the development of creative AI art, encouraging innovation across an array of sectors, encompassing e-commerce, gaming, design and advertising. Through this initiative, Alibaba intends to equip individuals and industries to harness the promise of generative AI for their creative pursuits.
Jingren Zhou, chief technology officer at Alibaba Cloud Intelligence, underscored the necessity of cautiously navigating the launch of generative AI offerings to bypass potential regulatory issues. Both Alibaba and Baidu have designed their AI tools specifically for enterprises, mindful of the regulatory landscape shaped by Chinese authorities. Earlier this year, Beijing instituted groundbreaking regulations overseeing "deep synthesis technologies" entailing AI-altered images and videos, followed by draft rules in April to oversee corporations' growth of generative AI products.
Alibaba's pursuit of generative AI aligns seamlessly with its larger commitments in various sectors, such as cloud computing and finance. The company's research institute, DAMO Academy, has identified generative AI as one of the top 10 technological trends for the coming year.
Recent initiatives reaffirm Alibaba's dedication to generative AI. As the competition intensifies in the space, Chinese and U.S. tech behemoths strive to outdo each other.
Fresh start
The recent wave of AI initiatives comes as Alibaba and its investors look for a fresh start. Very few companies in China have the kind of power the company possesses. However, this power has diminished over the last few years as regulators in China tried to reign in Big Tech.
For Alibaba itself, it meant a multibillion-dollar fine a few years back and lengthy reviews from regulators looking to ensure the tech giant did not violate any anti-monopoly regulations.
However, Alibaba is looking to turn over a new leaf. It is embarking on a transformative journey to redefine its operations. To chart a new course, the company intends to split its business into six distinct units that span a range of sectors. These units comprise domestic e-commerce, international e-commerce, cloud computing, local services, logistics and media and entertainment.
Alibaba's restructuring has garnered positive feedback from investors and analysts, who view it as a pivotal transformation. This strategic maneuver is expected to unleash the full potential and value of its businesses.
The domestic e-commerce division, encompassing platforms like Taobao and contributing significantly to the company's revenue, will remain a wholly-owned unit. The five other units will operate under their respective CEOs and have the flexibility to pursue separate public listings.
In an email to employees, Alibaba CEO Daniel Zhang emphasized the market will serve as the ultimate test, allowing each group to independently seek fundraising and initial public offerings when they deem themselves prepared.
This restructuring is widely considered to be a positive development by many analysts who believe it will encourage investors to reassess Alibaba's valuation. According to these analysts, Alibaba, as a standalone conglomerate, is currently undervalued. The company's breakup will enable each unit to be independently valued, leading to a situation where the sum of the parts is greater than the whole.
Takeaway
Those who have been closely monitoring Alibaba in recent years know the company's challenges. However, a well-defined strategy is in place to navigate the coming decade.
Consequently, recent developments will likely please Alibaba investors as they will contribute to reaffirming the tech conglomerate's dominance in China and its expansion into global markets. Observant market analysts will continue to monitor the company and its progress with keen interest.
