Alibaba Group Holding is reminding investors that the U.S. isn’t the only AI game in town.

The company announced an increased investment in artificial intelligence and unveiled a new AI model on Wednesday. It’s the latest reminder that China’s AI boom could play out differently—and last longer—than in the U.S.

Alibaba CEO Eddie Wu said the company would expand its investment on AI and cloud infrastructure over three years beyond the 380 billion yuan it outlined in February, as demand for AI infrastructure has far outstripped the company’s expectations. The company also released Qwen3-Max, its latest large-language model, adding to the enthusiasm that DeepSeek’s model brought to China’s tech sector earlier in the year.

Alibaba’s American depositary receipts rose 8.2% on Wednesday to $176.44 as investors seemed to view the announcement as a reflection of China’s AI potential.

One big takeaway for investors is the Chinese government’s shift in stance toward Alibaba, which had seen its market value crater in recent years amid a broad-based antimonopoly government crackdown on internet platform companies. But Alibaba’s AI investment plans likely were done with the blessing of the government, suggesting it is now strategically aligned with Beijing’s aims, analysts say.

China has set a goal of becoming an 「intelligent economy」 and 「intelligent society」 by 2035. That necessitates the adoption of AI into every aspect of its economy and could translate to an AI boom that has more legs than that in the U.S., says Laila Khawaja, head of technology research at Gavekal.

Beijing sees AI basically as the driver of future economic growth and the engine for the next industrial revolution, Khawaja says.

「That means AI development will not only have continued government backing in the form of funding, subsidies, and the like, but also guaranteed demand because to adopt AI society-wide means huge inference demand,」 she adds.

Another area where China may have an edge is with energy, which Khawaja sees as the biggest bottleneck to AI development in the U.S.

「Beijing is not only adding electricity generation at the fastest rate, installing renewables capacity at a rapid rate, but also building out a national infrastructure to maximize compute energy efficiency…and giving massive support to the development of energy storage—crucial for using solar and wind for powering AI— and micro grids to boost renewables use in AI data centers,」 she adds.

While China is good at creating advanced algorithms needed for AI, Vivian Lin Thurston, a manager on William Blair’s emerging markets strategy, says it is constrained for now by its limited access to advanced chips. Beijing is increasingly encouraging Chinese companies to use domestic chips as the U.S. curtails its access to advanced technology.

「The AI evolution will be different in the U.S. than in China—both in its monetization paths and use cases,」 she says.

Adoption of AI has been slower in China than in the U.S., especially as companies contend with the current economic rout, anemic demand and deflationary pressures, Thurston says. Much of the adoption has been in areas Beijing is prioritizing, like advanced manufacturing to fuel its industrialization and export growth—including electric vehicles, companies tied to the energy transition, and home appliances, where AI is being used for automation. In comparison, AI applications have been broadly adopted across U.S. sectors, including financial services, technology, media, logistics and retail.

As a result, Thurston expects much of China’s early spending to be focused on AI infrastructure rather than applications. That would make China’s AI spending trajectory potentially slower than the U.S.’s, but longer overall.

The easiest way to play China’s AI boom is through hyperscalers, like Alibaba,Tencent Holdings, and even Baidu. Of the bunch, Alibaba has been a favored play among investors.

At 17 times earnings, Alibaba shares are pricier than the single-digit valuation it traded in 2024 in the wake of the government crackdown and economic malaise. But it is still cheaper than the 24 times forward earnings fellow e-commerce and hyperscaler Amazon.com commands.

Analysts also note that Alibaba’s current earnings don’t fully incorporate the benefits of the AI boom’s continued momentum in China nor the outlook for its core e-commerce business if the economy shows further stabilization.

Another positive: Alibaba is no longer in the government doghouse. Co-founder Jack Ma, who had disappeared from the limelight following the government crackdown, recently re-emerged with a reported hand in corporate strategy. Alibaba is quickly emerging as the top AI player—while remaining in the government’s good graces—which should help the stock.

There are other winners, as well, with increasing AI capital expenditures likely to bring a windfall through the entire Chinese AI supply chain. Other beneficiaries, Khajawa says, include high bandwidth memory makers, companies involved with networking equipment, liquid cooling, repair and maintenance services.

Citi analyst Louis Tsang in a note to clients also highlighted opportunities in Alibaba’s overseas data center buildout in Brazil, France, and Netherlands, and the company’s plans to increase data-center capacity in Mexico, Japan, Korea, Malaysia, and Dubai. Tsang says data center companies like GDS Holdings and VNET stand to gain. They should see accelerating order growth and a potential stock rerating from this increased Alibaba investment, especially if the company’s peers follow its increased investment plans. Tsang has a Buy rating on both companies.