Shares of Alibaba Group Holding (BABA) surged 1.9% on Wednesday, with gains reaching as high as 5.5% earlier in the day, amid a downturn in the S&P 500 and Nasdaq Composite. The rise follows Alibaba’s announcement of the latest version of its Qwen AI model just days after the market reacted negatively to the release of China’s DeepSeek AI chatbot.
Alibaba’s Qwen AI model boosts shares amid DeepSeek competition
The launch of DeepSeek impacted U.S. AI stocks, which saw declines following the news. DeepSeek was reported to have been developed at significantly lower costs compared to its U.S. counterparts, utilizing less advanced chips due to U.S. export restrictions. This raised concerns among investors about the efficiency and cost-effectiveness of American AI ventures.
In response, Alibaba introduced Qwen 2.5-Max, claiming it outperforms many current AI models, including DeepSeek’s V3 version. However, it is important to note that Alibaba’s claims about Qwen 2.5-Max being superior pertain specifically to the DeepSeek-V3 model, not to its latest R1 model, which has gained significant attention. Despite these claims, DeepSeek appears to maintain a competitive edge.
Furthermore, Alibaba’s decision to cut prices up to 97% on its offerings after DeepSeek’s V2 model demonstrates the competitive pressures in the Chinese AI market.
Despite being a relatively small and privately-held company without state backing, DeepSeek’s approach has disrupted the industry.
If Alibaba’s Qwen 2.5-Max gains traction as a superior AI model, the company could capture significant market share in China’s competitive AI landscape. Should Alibaba’s aggressive price cuts of up to 97% force competitors to follow suit, this strategy could strengthen its position as a cost-effective leader in AI solutions. Investors who believe Alibaba can leverage its extensive ecosystem to scale Qwen rapidly might see long-term growth as the Chinese AI market expands.
If you’re uncertain about Qwen 2.5-Max’s actual performance against competitors like DeepSeek’s R1, holding your position might be wise. While Alibaba’s shares rose 1.9% amid a broader market downturn, it’s still unclear if the AI advancements will translate into sustained revenue growth. Investors who think the competitive pressures in the Chinese AI market could lead to prolonged price wars might prefer to hold and watch how the market dynamics evolve before making further moves.
If DeepSeek continues to outperform with its cost-efficient models, Alibaba could struggle to maintain its edge despite the Qwen launch. Those worried that Alibaba’s price cuts reflect deeper competitive vulnerabilities may consider selling, especially if they believe DeepSeek’s low-cost strategy could undermine Alibaba’s market share.
Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.
Featured image credit: Alibaba
