Alibaba Group Holding Limited has been in the spotlight this week after releasing its Qwen 2.5-Max AI model, just a few days after DeepSeek‘s V3 and R1 models made waves in the US.
The rivalry between the US and China in today’s AI race is quite similar to the competition between the US and the Soviet Union in the space race to the Moon back in the 1960s.
The so-called Sputnik Moment for American AI models came just one week after DeepSeek’s R1 model release. By January 27, DeepSeek was the highest-rated free app on the iOS App Store in the United States, claiming that they spent ~$6 million to train their model. The Sputnik Moment 2.0 came just a few days later, with Alibaba’s Qwen 2.5 Max model.
Qwen 2.5 Max
Alibaba Cloud introduced the Qwen2.5-Max model on the eve of Chinese New Year. This model uses an MoE (Mixture of Experts) architecture, which, in plain English, is a combination of specialized submodels (or experts) each good at handling specific tasks. Therefore, when you send a query, only the most relevant experts are activated, reducing the FLOPs (Floating Point Operations) compared to the American AI models.
Qwen 2.5 Max was pre-trained using 20 trillion tokens, and then it was fine-tuned using a combination of RLHF (Reinforcement Learning from Human Feedback) and SFT (Supervised Fine-Tuning). According to the team that developed Qwen, the model outperformed DeepSeek V3 in Arena-Hard, LiveBench, LiveCodeBench, and GPQA-Diamond.
The key features include
Understand things visually: Qwen2.5-VL is not only proficient in recognizing common objects such as flowers, birds, fish, and insects, but it is also highly capable of analyzing texts, charts, icons, graphics, and layouts within images.
Being agentic: Qwen 2.5-VL directly plays as a visual agent that can reason and dynamically direct tools, which is capable of computer use and phone use.
Understanding long videos and capturing events: Qwen 2.5-VL can comprehend videos of over an hour, and this time it has a new ability to capture events by pinpointing the relevant video segments.
Capable of visual localization in different formats: Qwen2.5-VL can accurately localize objects in an image by generating bounding boxes or points, and it can provide stable JSON outputs for coordinates and attributes.
Generating structured outputs: For data like scans of invoices, forms, tables, etc., Qwen 2.5-VL supports structured outputs of their contents, benefiting usages in finance, commerce, etc.
Enhanced Text Recognition and Understanding: Qwen 2.5-VL has upgraded its OCR recognition capabilities to a new level, with enhanced multi-scenario, multi-language, and multi-orientation text recognition and text localization performance. Furthermore, it has been significantly enhanced in information extraction to meet the growing digitalized and intelligent demands in areas such as qualification review and financial business.
Additionally, it shows competitive results in MMLU-Pro against leading models like GPT-4o and Claude-3.5. Where it is not as competitive is in the pricing of its API.
Sentiment Analysis
Alibaba’s share price is down close to 70% from the all-time highs in 2020. As you may remember, the downward spiral began in November 2020 when Chinese regulators suspended Ant Group’s IPO. In November 2022, the share price touched the $60 price mark, which seems to be a historical support level.
Since then, the share price has been trading sideways, twice touching the $120 price level, which seems to now be a resistance level. In the past year, the sentiment seems to have changed, and this is clearly visible on the daily chart below, where one can clearly notice higher highs and higher lows, with a clear upward trend line.
All in all, the sentiment surrounding this stock is quite optimistic. While March 21, 2025, $100 call doesn’t make too much sense, considering the recent increase in the share price following the Qwen 2.5 Max announcement. At the moment of writing this article, it has an IV of 45%, with a breakeven at expiration (assuming constant IV) above $105. That’s close to 9% above the current share price. The more interesting contract is the January 26, 2026, $95 call. Simply because it buys you time for the share price to retest the $120 price level if we see a pullback in the next weeks when the shareholder excitement with Chinese AI models cools off.
Risks
Aside from the risk of 100% drawdown inherent with owning options, there are other factors to consider. Alibaba’s core China commerce retail business is showing signs of stagnation, with revenue growing just 1% year over year in the last quarter. It seems that the company’s growth in this segment is struggling due to Pinduoduo’s low-cost supply chain and gamified shopping experience. This competitive pressure is not only visible in the low end, as higher-end customers seem to prefer JD.com due to its integrated logistics system, making it possible for same-day or next-day delivery for 90% of orders in major cities. Alibaba’s Cainiao, by contrast, relies on third-party logistics providers, which leads to inconsistent delivery speeds. Another factor that makes me sweat is the fact that JD Logistics has opened its network to external merchants, including those selling on Alibaba’s Taobao and Tmall.
Yet another big risk could come from other Asian firms making big advancements in their own generative AI models, like SenseTime or Baidu’s Ernie Bot. As it happened with DeepSeek and now Qwen 2.5 Max, these AI models can gain importance in the West in a matter of days, not months. And, as you may know, such an event catching investors by surprise usually leads to a selloff in companies that were once seen as the leaders in a particular technology.
Conclusion
Following the release of Qwen 2.5 Max, the narrative of the company is changing, with the cloud segment taking more importance than the stagnated e-commerce segment. Considering the sharp decline since the all-time highs in 2020, all the company needs for a successful turnaround is a progressive pivot from the core commerce to the cloud intelligence segment.
Considering the current landscape, investors are excited by AI, not stagnant e-commerce businesses. If the company successfully manages to focus on this high-growth segment, its share price could rise just on the narrative that they are pivoting towards cloud computing, regardless of whether this segment is profitable today or not.
From a price action perspective, it’s a clear uptrend in the past year. Additionally, the options market is quite optimistic about the continuation of this trend.
All in all, despite a good chance for new Asian competitors to release their own AI models and outperform the Qwen 2.5 Max, Alibaba is a cautious buy.
