Polaris Keeps Alibaba as AI Growth Meets China Risks

Polaris Capital held Alibaba at the end of June, even as China was the biggest drag on its global equity portfolio in the second quarter. Its report named Alibaba and Ping An Insurance as the main reasons for the regional weakness, but did not disclose Alibaba’s portfolio weight.

The investment case gained a fresh AI catalyst on September 22. At its Apsara conference, Alibaba announced a new chip, said its next-generation Qwen 4 model was in training, and set a goal of more than 20 gigawatts of global data-center capacity by 2032.

Recent results show cloud demand growing quickly. For the quarter ended June 30, Alibaba’s AI Cloud and Compute Services revenue rose 45% year over year to 48.4 billion yuan, while adjusted operating profit for the unit more than doubled.

But the core China e-commerce business moved in the opposite direction: revenue fell 8% to 110.9 billion yuan. Company-wide free cash flow was a 44.7 billion yuan outflow, which Alibaba attributed mainly to higher cloud-infrastructure spending.

Polaris also pointed to risks beyond execution. The Pentagon added Alibaba to its list of Chinese military companies in June; Alibaba sued to challenge the designation. In its report, Polaris cited concern that Alibaba’s proposed $1.5 billion bid for grocery-delivery firm Pupu could increase exposure to low-margin price competition.

A separate AI dispute adds uncertainty. Anthropic alleged in September that accounts linked to Alibaba were used in efforts to extract outputs from its Claude models. The claim remains an allegation, but it raises the prospect of further scrutiny as U.S.-China competition over AI intensifies.

The next test is whether AI growth can turn into durable earnings without keeping cash flow under pressure. Polaris’s June 30 disclosure confirms Alibaba was still in the portfolio then; it does not show whether the firm changed its position afterward.