Alibaba Group is making aggressive moves to secure a leading position in the competitive AI-generated video market, pursuing a dual-track strategy of internal development and external investment. The company’s newly formed AI unit, Alibaba Token Hub (ATH), recently celebrated a technical victory. Its proprietary video model, HappyHorse-1.0, secured the top spot in both text-to-video and image-to-video categories on the Artificial Analysis benchmarking platform. Blind test results indicated the model offers superior image quality and motion consistency compared to rival offerings.
Simultaneously, Alibaba Cloud is placing significant external bets. On Friday, it led a funding round worth 2 billion yuan, approximately $293 million, for Beijing-based startup Shengshu Technology. Other participants included Baidu Ventures and Luminous Ventures. Shengshu, founded in March 2023 by Tsinghua professor Zhu Jun, operates the Vidu video generation platform. The fresh capital is earmarked for developing a “General World Model,” a system designed to process sensory information to simulate human perception, which the startup describes as a step toward artificial general intelligence.
This investment highlights Alibaba’s broader strategic pivot. Rather than relying solely on in-house technology, the conglomerate is positioning itself as an infrastructure investor across the entire AI ecosystem. The funding for Shengshu comes just two months after the startup raised 600 million yuan in a prior round, underscoring the frantic pace of investment in this sector. Shengshu reported user and revenue growth of more than tenfold for 2025, though it did not provide specific figures.
The market for AI video is intensely crowded, with domestic players like ByteDance, Kuaishou, and Alibaba’s own portfolio company PixVerse vying for position alongside international giants like Google and startups such as Runway. The segment gained further attention following OpenAI’s decision to halt its Sora video project.
Back at its own labs, Alibaba’s ATH unit, established only in March 2026 to consolidate various AI services, is seeing early returns. HappyHorse-1.0 is currently in internal beta testing, with an API access launch expected soon. Investors in Hong Kong responded favorably to the week’s developments, with Alibaba’s stock closing up 2.12 percent on Friday. This gain added to a volatile week of trading as the market assesses CEO Eddie Wu’s centralized AI strategy.
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However, this aggressive growth strategy carries a substantial cost. For the third fiscal quarter of 2026, Alibaba’s operating income plummeted 74 percent year-over-year. Non-GAAP net profit fell 67 percent, and free cash flow shrank by 71 percent. Management directly attributes this sharp decline to massive spending on AI and its quick-commerce business.
Despite these profit pressures, the cloud division driving much of the AI investment is showing strong top-line growth. Alibaba Cloud’s quarterly revenue recently increased by about 36 percent, fueled by AI workloads. The company has set an ambitious target: within five years, it aims for its cloud and AI businesses together to generate over $100 billion in annual revenue. This is a significant leap from its current annualized cloud revenue of roughly $25 billion.
In a separate corporate action, Alibaba filed a monthly report with the U.S. SEC on April 8. The filing disclosed an increase in issued shares by approximately 34.7 million, bringing the total number of ordinary shares to about 19.13 billion. This change resulted from the routine exercise of employee share options and the vesting of Restricted Share Units under existing compensation plans.
The stock market’s reaction has been mixed. While shares jumped roughly 7 percent in pre-market trading on Thursday following the investment news, they remain down about 20 percent since the start of the year. Investors are closely watching to see if the company’s heavy capital expenditures in artificial intelligence will eventually translate into commensurate financial returns.
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