Alibaba is more than doubling its R&D spend (BABA)

alibaba r&d

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Alibaba plans to boost its research and development (R&D) spend to $15 billion over the next three years, according to Bloomberg. The projected investment is a hefty increase of 134% from the $6.4 billion the company spent on R&D over the past three years.

Alibaba is expected to dedicate a majority of its R&D spend to three categories of artificial intelligence (AI), as it works toward becoming a global leader in the space:

Machine learning. In lieu of coding specific instructions, the machine is trained via a trial-and-error process using vast amounts of data, enabling it to learn how to perform a given task. This is the process behind Amazon's personalized product recommendations and Netflix's recommendation system.
Visual computing. Computer vision and object recognition, which power visual search, are already being explored by companies like Google, Apple, and Amazon, as the input method gains steam among consumers.
Natural language processing (NLP). This tech is integral to conversational commerce, which uses voice assistants and chatbots as the primary interface for consumers. Alibaba is likely bolstering its NLP research to improve its voice assistant, Tmall Genie.

A robust AI platform is a must-have for Alibaba as it seeps into industries beyond online retail. For instance, Alibaba is also one of the largest cloud companies in China, having already launched AI and cloud services for the healthcare and manufacturing industries.

However, Alibaba still lags behind western tech companies, such as Amazon, Alphabet, and Intel, in R&D spending. For example, in the last fiscal year alone, Amazon spent more than $16 billion on R&D. Moreover, Alibaba’s projected R&D spend makes up roughly 11% of the company’s total projected revenue over the same period, which is in line with where it's been over the past few years. In comparison, in the most recent full financial year, Facebook's R&D spend relative to sales was 21%, and Google’s was 15.5%. While Alibaba’s smaller R&D spend may be enough in its native market of China — where its mostly insulated from the threat of foreign companies — it may prove inadequate internationally as the company continues to expand.

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