(Yicai) June 17 -- In contrast to Microsoft, Alibaba Group Holding is one of the few tech titans in the world that has a significant competitive advantage due to its combination of capabilities in artificial intelligence and cloud computing, according to Chairman Joe Tsai.

"Microsoft doesn't actually have its own AI development; the company essentially outsourced it to OpenAI," Tsai said during the J.P. Morgan Global China Summit, hosted by the American investment bank. Alibaba launched its self-developed large language model Tongyi Qianwen in April last year, less than five months after OpenAI's ChatGPT.

Microsoft has established a close partnership with OpenAI but the two independent companies might part ways in the future, Tsai added.

AI needs cloud but few tech behemoths are fully equipped. Consequently, e-commerce giant Amazon, which offers cloud computing services, has invested in Anthropic, an LLM startup. Meta developed its own open-source LLM called Llama but the operator of Facebook and Instagram resorts to buying cloud services from Microsoft, Amazon Web Services, and Google.

LLM developers require massive amounts of data to improve their models but who will pay the bill? Alibaba's solution is synergistic as the Chinese e-commerce pioneer created an open-source AI community called Model Scope to offer models for training.

"When people use open-source AI in our community, they require computing power, and this is how we increase our cloud computing revenue," Tsai said.

Among China's internet giants, the owner of Tmall and Taobao has been investing most aggressively in LLMs. From the second half of last year to the beginning of this year, the firm invested at least CNY13.5 billion (USD1.9 billion) in five LLM startups, including Zhipu Huazhang Technology, Zero One Everything Technology, Baichuan Intelligent Technology, MiniMax, and Moonshot AI.

The full-loop business model should boost earnings. In the six months ending March next year, Alibaba Cloud is expected to return to double-digit revenue growth, Chief Executive Eddie Wu said earlier. In the quarter ended March, revenue of Alibaba Cloud's core public cloud services achieved double-digit growth and AI revenue surged by triple digits, the CEO added.

However, in the fiscal year ended March, Alibaba Cloud's revenue rose merely 3 percent to CNY106.43 billion (USD14.6 billion) from the year before while its adjusted earnings before interest, taxes, and amortization tallied CNY5.6 billion (USD770 million).

Even Microsoft's investment in OpenAI is mutually beneficial. The operating system provider gives the LLM developer computing power whereas especially corporate users of ChatGPT will need more Microsoft cloud services.

Everbright Securities predicted that in the three fiscal years ending 2026, Microsoft's revenue from server products and cloud services is expected to grow year-over-year by 17 percent, 16 percent, and 14.8 percent, respectively.

Editor: Emmi Laine