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Alibaba (BABA) is enjoying modest appreciation today after Reuters reported that the China-based e-commerce and cloud giant would be looking to enact an up to 85% price slash on large language models (LLMs), a popular type of conversational AI. The price cut would be aimed toward BABA's Qwen-VL, a multimodal LLM-based AI assistant that touts a technological edge over other LLMs, like GPT-4o, specifically surrounding video processing.

• The price cut underscores an increasingly competitive landscape as industries turn to the numerous AI-focused tech firms in China and internationally to enhance their competitiveness and efficiency. The AI frenzy has been a significant driver of BABA's improving Cloud segment revenue growth over the past few quarters, recently boasting a 7% jump in Q3 compared to a +6% and +3% improvement in Q2 and Q1, respectively. As such, other companies have rapidly developed LLMs of their own, looking to get in on lucrative AI action.
• Baidu (BIDU), often referred to as the Google of China, is focused on advancing its AI capabilities, serving as the cornerstone of its AI-driven transformation. The company's flagship ERNIE 4.0 Turbo model was recently shown to increase throughput by 48% compared to its debut in June, a significant improvement in just a few months. Likewise, Tencent (TCEHY), a prominent multi-media firm based in China, expressed its commitment to continuously investing in AI technology and tools.
• BABA was confident that its Cloud division would return to double-digit growth over the medium to long term. The company is constantly allocating capital to intensive R&D, aiming to be the leading cloud service provider for AI. Cutting prices, while adversely impactful to near-term revenue, may be the right move to ensure it can reach market dominance.

Shares of BABA have been in a slump since reaching one-year highs in early October following stimulus measures from the Chinese government, pulling back by around 28%. Moving into 2025, BABA must contend with increasing AI competition while battling a deteriorating economy, hindering growth in its e-commerce business. Competition is also intensifying in e-commerce, forcing BABA to battle headwinds on multiple fronts. As a result, the year ahead for BABA could bring considerable volatility, with future performance potentially dependent on further government stimulus.