To The Moon

Alibaba Vs. Regulators 2.0 May Begin With The ChatGPT-Like Tongyi Qianwen

Summary

• $Alibaba(BABA)$ 's launch of Tongyi Qianwen, its own generative AI bot, has triggered a regulatory response in China.

• The Cyberspace Administration of China issued draft guidelines for the use of generative AI services in the country yesterday, and some of the main guidelines are highlighted in this article.

• The regulatory response to generative AI services is a clear indication that regulators are keeping a close eye on the sector to safeguard national interests.

• As an Alibaba investor, I am excited for the new doors generative AI will open up but as an analyst, I am wary of the possibility of increased regulatory scrutiny.

• I do much more than just articles at Leads From Gurus: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Robert Way

I will go out on a limb and say that the last thing Alibaba Group Holding Limited (NYSE:BABA, OTCPK:BABAF) investors want to hear today is “regulatory scrutiny.” After almost 3 years of grappling with a crackdown on the Chinese tech sector, Alibaba stock has finally shown some strength this year, with the stock up 8% so far in 2023. Chinese policymakers understand the important role played by the platform economy in driving the economy forward, but at the same time, they are not ready to give up control of the economy to a few companies including the likes of Alibaba.

When I invested in Alibaba amid the tech crackdown-induced crash, I knew I was getting myself into a company that would face regulatory hurdles time and again, but I was hoping 2023 would be a year characterized by Alibaba’s fundamental strengths – not regulatory scrutiny. Yesterday’s launch of Tongyi Qianwen, Alibaba’s very own ChatGPT-like bot, has already triggered some regulatory scrutiny, wiping out my hopes for a calmer 2023 as an Alibaba investor. As discussed in this analysis, investors need to keep a close eye on the regulatory landscape for generative AI products in China, although Alibaba is unlikely to face meaningful threats in the short run.

A Quick Look at Tongyi Qianwen

Tongyi Qianwen is a generative AI model developed by Alibaba that can create new content and communicate with users both in English and Chinese. According to the company's press release, the AI model will be initially integrated with DingTalk and Tmall Genie, and the company plans to open access to the service to developers and customers to build customized AI tools using this generative AI technology. The company plans to integrate the AI service across all of the company’s products and services in the future.

Tongyi Qianwen may not be as advanced as ChatGPT for the time being, as Alibaba is still in the initial training phase of this model, but similar to any AI model out there, Tongyi Qianwen will get better when the model is trained with real-world data as Chinese businesses start using the service. For now, Tongyi Qianwen will only be available to enterprise users but a public rollout can be expected in the coming months.

The Swift Regulatory Response to Generative AI

Along with the launch of Tongyi Qianwen, the Cyberspace Administration of China, which is a powerful regulatory body that governs platform companies, issued draft guidelines that govern the use of generative AI services in the country. Below are some of the main policies highlighted by the policymakers.

1. Generative AI services will need to pass a government security review before launching the services to the public.

2. AI-generated content should not threaten the socialist values promoted by the ruling party.

3. Content should not promote any form of discrimination.

4. AI models should not be used to garner an unfair competitive advantage.

5. Companies should ensure that AI-generated content is true and fair.

6. The privacy of users and their data should be ensured.

Nothing is alarming about the draft guidelines published by the regulator, but it is important to note that companies like Alibaba are expected to ensure their AI models will be used according to these guidelines. Failure to comply with finalized guidelines will result in fines and suspension of generative AI services.

Paving the Road for Increased Scrutiny

In my opinion, the swift regulatory reaction to the launch of generative AI services by $Alibaba(BABA)$ , $Baidu(BIDU)$ , and $SENSETIME-W(00020)$ is a clear indication that regulators have identified the need to keep a close eye on this sector to safeguard national interests. The aforementioned draft guidelines will pave the road for regulators to crack down on the tech sector yet again if they feel the need, and that is not a risk that I’m willing to dismiss today given that regulators showed a willingness to shoot themselves in the foot over the last couple of years by limiting the growth potential of the platform economy, thereby limiting the growth of the Chinese economy.

In the short term, I believe Alibaba and other platform companies will be allowed to invest in and experiment with generative AI freely amid the rising tensions between the U.S. and China. Similar to how China created its own social media industry without inviting the likes of $Meta Platforms, Inc.(META)$ into the country, the generative AI sector is also likely to be centered around the product offerings of home-based tech giants, not the likes of ChatGPT and Bard with links to $Microsoft(MSFT)$ and $Alphabet(GOOG)$ Failure to aggressively invest in generative AI to develop products that rival the likes of ChatGPT will push China onto the backseat in its tech war against the United States, and I don’t believe regulators will allow that to happen just yet.

Takeaway

As an Alibaba Group Holding Limited investor, I am excited about the new possibilities that generative AI will open up for the company, but as an analyst, I can’t help but factor in the possibility of increased regulatory scrutiny in the future resulting from a nationwide adoption of generative AI services. In any case, I believe Alibaba is still trading in the deeply undervalued territory, as I have highlighted in my previous articles. For this reason, I will remain invested in Alibaba Group Holding Limited for now while keeping a close eye on the finalized guidelines for generative AI products in China.

Source: Seeking Alpha