Alibaba’s $2 billion gaming exit signals where Beijing wants its money

Alibaba is shedding its video game development arm, Lingxi Games, for over $2 billion, leaving the Chinese tech giant without an in-house game studio. Lingxi, which developed the mobile hit Three Kingdoms: Strategy Edition, is being sold to private-equity firm Trustar Capital, with the companies yet to disclose the exact sale price.

The decision comes as Alibaba shifts its focus towards AI and cloud computing, areas Beijing views as crucial for the nation's economic strategy. Last year, Alibaba committed $53 billion over three years to AI and cloud infrastructure, aiming to surpass that amount thanks to increased data center buildout costs. The company is targeting $100 billion in AI revenue by 2031.

Domestic competition from e-commerce rivals like Pinduoduo and Meituan has made it imperative for Alibaba to streamline its non-core assets and prioritize returns. Lingxi is considered a remnant of an earlier Alibaba, which pursued many side projects, but the gaming sector was never one of its strongest businesses. Alibaba has been at the forefront of China's AI boom, leveraging its existing cloud infrastructure to develop and monetize AI products.

The company's Qwen models have garnered over 3 billion downloads in six months, placing Alibaba ahead of Meta and Google in terms of AI adoption.