Alibaba (NYSE:BABA) just dropped a bombshell: it's pouring $52.4 billion into AI and cloud computing over the next three yearsmore than it spent on the sector in the past decade combined. Investors didn't exactly throw a party. The stock dropped nearly 4% in the premarket trading as markets worried about the impact on profitability, a reaction that's been all too familiar lately. Amazon and Alphabet also faced investor pushback after revealing their own big-ticket spending plans. Alibaba's move signals it's going all-in on AI-driven growth, but the big question is whether that investment will pay off or just eat into margins.

• Warning! GuruFocus has detected 5 Warning Signs with BABA.

The company is already making aggressive moves. Its latest AI model, Qwen2.5 Max, is positioned as a serious contender to global heavyweights, and its upcoming integration into Apple's iPhones in China could be a game-changer. Meanwhile, Alibaba's core business is gaining steam. Its latest earnings report showed its fastest revenue growth since 2023, driven by a resurgence in e-commerce and cloud demand. Analysts had expected Alibaba to invest around 350 billion yuan in AI and cloud through fiscal 2028this new figure blows that out of the water, signaling a level of ambition that could reshape the industry.

Despite the recent pullback, Alibaba has surged significantly in 2025, fueled by optimism over China's economic rebound and the country's AI boom. The big spending could set it up as a dominant force in cloud computing, but there's a fine line between bold bets and overreach. Investors will be watching closely to see if Alibaba can turn this into real market share gainsor if it's just another costly arms race in AI.