In a major move, Alibaba Group Holding Ltd (NYSE:BABA) slashed prices on its artificial intelligence services by up to 97%, prompting immediate reactions from competitors Baidu Inc (NASDAQ:BIDU) and ByteDance Ltd.

This aggressive pricing strategy is expected to ignite a price war in China's emerging AI sector.

Baidu responded soon with free services based on its Ernie AI models, shortly after Alibaba announced price cuts on nine products utilizing its Tongyi Qianwen technology.

ByteDance had already set the stage last week by offering AI services at prices 99% lower than industry norms, benchmarking against Ernie and Alibaba's Qwen, reported Bloomberg.

These actions signal the beginning of fierce competition driven by pricing within the AI industry. The sector has attracted massive investments from startups and major tech firms like Tencent Holdings Ltd. (OTC:TCEHY).

The influx of capital has led to the creation of numerous AI models and a variety of consumer and enterprise products, all vying for a critical user base essential for advancing AI technologies.

For years, Chinese tech companies have used aggressive discount strategies across various markets, including e-commerce and ride-hailing.

Earlier this year, Alibaba triggered widespread price cuts in cloud computing by offering discounts of up to 55% on over 100 domestic services in March.

Also Read: Alibaba Boosts E-Commerce Edge with AI, Despite Shrinking Market Share

This move was swiftly matched by JD.com Inc. (NASDAQ:JD), showcasing the highly competitive nature of the market.

Like their Silicon Valley counterparts, Chinese tech giants like Alibaba are heavily investing in generative AI. Besides developing proprietary AI models, they are also funding promising ventures such as Baichuan and Zhipu AI, aligning themselves with the global trend led by companies like Microsoft Corp. (NASDAQ:MSFT).

Amid these developments, Alibaba has undergone a major restructuring to reclaim users for its cloud business, which is integral to its AI operations.

The company recently surprised investors by canceling plans to spin off this segment into an independent, publicly traded entity.

Now under CEO Eddie Wu, Alibaba is concentrating on expanding its public cloud services, particularly those targeting enterprise clients, as it battles for market share against traditional rivals like Baidu and Tencent, as well as state-backed newcomers like Huawei Technologies Co.

BABA stock has gained over 2% in the last 12 months. Investors can gain exposure to the stock via Invesco Golden Dragon China ETF (NASDAQ:PGJ) and ProShares Online Retail ETF (NYSE:ONLN)

Price Action: BABA shares were trading lower by 2.55% at $86.03 in premarket at the last check on Tuesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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