Cover Story: Alibaba Fights Tencent for Dominance Over AI in China

In early 2024, a little-known Chinese AI startup named DeepSeek rocketed onto the international stage, drawing attention from Silicon Valley and China’s tech hubs alike. Its founder, Liang Wenfeng, found himself at a key roundtable with Chinese President Xi Jinping alongside tech titans like Tencent’s Pony Ma and Alibaba’s Jack Ma, highlighting DeepSeek’s rapid ascent in China’s internet hierarchy[para. 1]. DeepSeek’s breakthrough—creating a disruptive large AI model with just 2,000 GPUs—caught China’s established internet giants by surprise. In response, Tencent and Alibaba recalibrated, investing heavily in AI and cloud infrastructure to maintain their dominance. For instance, Alibaba pledged 380 billion yuan ($52.9 billion) over three years—eclipsing its previous decade of investment[para. 2][para. 3][para. 4].

Tencent swiftly integrated DeepSeek’s R1 model into its chatbot Yuanbao, focusing on rapid application rollouts, while Alibaba centered its strategy on infrastructure, open-source models, and Model-as-a-Service (MaaS). By March 2024, Alibaba’s Qwen open-source model family notched over 100,000 developer variations. In parallel, ByteDance consolidated its AI efforts under the Seed division, aiming to leverage its algorithmic strengths in generative AI[para. 3][para. 5][para. 6][para. 7][para. 8][para. 9].

This AI arms race is reshaping the technology landscape in China. Alibaba is investing massively in open-source AI and infrastructure, releasing Qwen3—the “world’s most powerful open-source model”—in April, with claims of 65–75% deployment cost reductions compared to alternatives[para. 19]. Its cloud division, rebranded as “AI-native,” saw 18% revenue growth in Q1 2025 and triple-digit AI-related sales growth for seven consecutive quarters, underlining the commercial success of its AI pivot[para. 33][para. 34][para. 36]. Alibaba now boasts over 70,000 models and 15 million developers on its ModelScope platform, and major companies like Baidu, BYD, and BMW are leveraging its cloud-based APIs[para. 30][para. 37].

ByteDance’s Volcano Engine cloud service has become the fastest-growing product in its portfolio, fueling demand for tokens and AI compute. In May 2024, its Doubao model handled 16.47 trillion daily token calls—a 137-fold increase in one year. ByteDance captured nearly half of China’s public cloud model call volume in 2024, outpacing Alibaba[para. 40][para. 42][para. 43].

Tencent, meanwhile, refocused on consumer-facing applications. By integrating DeepSeek into its flagship AI assistant Yuanbao and other products like QQ Browser and ima, Tencent rapidly expanded its AI-enabled user base. Key moves included embedding Yuanbao in WeChat, China’s most popular social app, and launching a dedicated WeChat Agent in 2025. Tencent Docs and Yuanbao both surpassed 10 million monthly PC users in March 2025, outstripping desktop competitors[para. 48][para. 51][para. 59]. Tencent’s AI efforts run deep: in advertising, large models are driving click-through rates up to 3%, while in gaming, AI assists both user experience and content creation through tools like the Hunyuan Vision Platform and integration with hit games[para. 70][para. 77].

As the AI boom accelerates, access to GPU chips—especially Nvidia’s, following U.S. export restrictions—has become a critical bottleneck. Alibaba Cloud amassed over 230,000 Nvidia AI chips and 450,000 domestic chips by end-2024, ByteDance plans to add 380,000 Nvidia chips in 2025, and Tencent is also investing heavily in compute resources[para. 102][para. 103][para. 104][para. 107]. All three giants are developing or investing in homegrown AI chips and hybrid computing platforms to cope with hardware uncertainties[para. 112][para. 113][para. 114][para. 115][para. 116].

Capital investment in the broader AI ecosystem has become another front, with Alibaba and Tencent channeling funds into leading AI startups and infrastructure providers to secure platform dominance—Alibaba focusing on cloud-based ecosystems, and Tencent leveraging its unparalleled user base on WeChat[para. 122][para. 124][para. 132][para. 135]. In China’s AI gold rush, platform power, encompassing compute, content, and community, is emerging as the most decisive factor for success in the years ahead[para. 141].