(Yicai) May 22 -- Shares of Meitu soared to the highest in almost seven years after the Chinese technology company known for its image-editing app announced a strategic partnership with Alibaba Group Holding.

Meitu [HKG: 1357] was trading down 3.3 percent at HKD6.79 (87 US cents) as of 11.20 a.m. in Hong Kong today. The stock climbed 19.5 percent to HKD7.05 yesterday, the highest closing price since June 2018.

Meitu and Alibaba will partner on e-commerce platforms, artificial intelligence technology, and cloud computing, the former announced on May 20. The deal also requires Alibaba to invest USD250 million in Meitu.

Meitu will issue USD250 million convertible bonds with a three-year term to Alibaba. If the Hangzhou-based e-commerce giant exercises the conversion right at a price of HKD6 per share, it will receive a 7.4 percent stake in the target company.

According to the agreement, Alibaba will prioritize the promotion of Meitu’s AI e-commerce tools on its e-commerce platforms and assist the Xiamen-based firm in developing new tools and functions for image and video generation to help improve the marketing and operational efficiency of merchants on its e-commerce platforms.

Launched in 2022, Meitu’s AI e-commerce product Meitu Design Studio boasts features such as AI poster creation and AI product image generation for internet celebrities, online merchants, and video bloggers.

Meitu Design Studio generated about CNY100 million (USD13.9 million) in revenue in 2023, which doubled to CNY200 million in 2024. It is Meitu’s fastest-growing product ever, having over 1.1 million paid subscribers as of the end of last year.

The agreement also stipulates that Meitu and Alibaba will jointly develop various foundational models and large language models for vertical domains, including video and image generation models. This will reduce the pressure on Meitu to develop models independently.

Regarding cloud computing, Meitu pledged to purchase cloud services from Alibaba worth no less than CNY560 million (USD77.8 million) over three years.

Alibaba values Meitu’s demand for cloud computing services in this partnership, an informed source told Yicai. In recent years, Alibaba has required the AI-related companies it invested in to use its computing power, the source noted, adding that Meitu’s demand for computing power and services is expected to grow as its AI business expands.

Alibaba Cloud Intelligence Group posted a first-quarter revenue of CNY30.1 billion (USD4.2 billion), up 18 percent from a year earlier, according to Alibaba’s latest earnings report. Among that, revenue from AI products maintained triple-digit year-on-year growth for the seventh consecutive quarter.

“Rather than worrying about the investment not generating accurate returns, large companies are more worried about missing out on future hot markets for not investing today,” Zhang Yi, an analyst at market research firm Canalys, told Yicai in a recent interview. Once AI is fully deployed, demand for computing power driven by AI will grow exponentially, requiring advanced planning, he added.

Editor: Futura Costaglione