Alibaba (BABA) Chairman Joe Tsai is raising concerns about the rapid expansion of AI data centers, warning that the boom could turn into a bubble. Speaking at the HSBC Global Investment Summit in Hong Kong, Tsai said companies are racing to build server farms, often without confirmed customers. “I start to see the beginning of some kind of bubble,” he told delegates at the summit, questioning whether these soaring investments truly reflect real AI demand.
At the same event, Tsai struck a more optimistic tone on China’s business environment, saying there are clear signs of growing confidence among entrepreneurs following a meeting between President Xi and Chinese tech leaders in Beijing. He noted that the Chinese government has sent a strong signal for businesses to reinvest and expand, leading Alibaba to resume hiring.
Big Tech Firms Pour Billions into AI Infrastructure
Major tech firms are investing heavily in AI, but Tsai fears they may be going too far. He noted that Microsoft (MSFT), SoftBank, and Alibaba are spending billions on AI infrastructure, raising concerns about overspending. In the U.S., companies like Amazon (AMZN), Alphabet (GOOGL), and Meta (META) have committed more than $200 billion this year alone.
For instance, Amazon plans to invest $100 billion, while Alphabet has allocated $75 billion for AI projects. Meanwhile, Meta is set to spend up to $65 billion to build out its AI infrastructure.
Though AI is thriving, unchecked spending without securing real AI demand could turn the gold rush into an expensive bubble, Tsai warned. He said, “People are talking about $500 billion, several hundred billion dollars. I don’t think that’s entirely necessary.”
Rising Doubts on AI Spending
Wall Street analysts are also beginning to question AI spending, pointing to signs of overcapacity. In February, TD Cowen reported that Microsoft had canceled some U.S. data center leases, raising doubts about long-term demand. However, Microsoft dismissed concerns, saying its capital spending plans remain flexible.
Adding to the debate, Chinese startup DeepSeek recently built a competitive AI model at a fraction of the cost, showing that massive spending may not be essential for AI breakthroughs. Its open-source model claims to rival U.S. technology, suggesting that some companies may be overspending on AI infrastructure. On Tuesday, DeepSeek advanced its technology further with an upgrade to its V3 model, which improves programming capabilities, highlighting that AI progress isn’t solely dependent on billion-dollar data centers.
Is BABA a Good Buy Right Now?
Analysts remain bullish on BABA stock, with a Strong Buy consensus rating based on a unanimous 16 Buy recommendations. Over the past year, BABA has increased by more than 92%, and the average BABA price target of $165.61 implies an upside potential of 23.15% from current levels.
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