Alibaba’s Lingxi Sale Shows AI Is Raising the Bar for What Stays Core

Alibaba Group’s agreement to sell its entire stake in Lingxi Games to private equity firm Trustar Capital does more than take the Chinese technology giant out of a gaming business it has owned for nearly a decade. It also signals how aggressively Alibaba is narrowing its strategic perimeter as artificial intelligence, cloud computing and commerce absorb more capital and management attention.

Neither Alibaba nor Trustar has disclosed the transaction value, closing timetable or regulatory conditions. Reuters said Alibaba is expected to receive more than $2 Bn, citing a person familiar with the matter, while Bloomberg reported at least $1.5 Bn. Lingxi CEO Zhou Bingshu and the existing management team will continue to run the company following the ownership change.

The more revealing question is not how much Alibaba receives, but why gaming no longer needs to sit inside the group.

Lingxi is being sold after China’s gaming industry rebounded from the regulatory uncertainty that disrupted the sector earlier this decade. The studio itself had explored external fundraising, but a planned process stalled in late 2023 after Beijing proposed tighter rules for online games.

Nor is Lingxi simply an experiment Alibaba picked up recently and abandoned. Alibaba acquired Guangzhou Ejoy, founded by Zhan Zhonghui, in 2017 at a $1 Bn valuation, and the business later became Lingxi Games. Its best-known title, Three Kingdoms: Strategy Edition, released in 2019, generated more than $1 Bn in revenue during its first two years, according to Sensor Tower data cited by Reuters.

That history makes the disposal a more useful marker of Alibaba’s changing capital allocation. The company is not exiting gaming because the category itself has disappeared. It is deciding that gaming is no longer sufficiently important to the Alibaba it is now building.

The Definition of Core Is Getting Tighter

Alibaba today describes itself as a technology company focussed on AI+Cloud and consumption. In its May shareholder letter, Chairman Joe Tsai and CEO Eddie Wu said the company was moving AI towards broader commercial deployment, while quick commerce had become a core part of the overhaul of Taobao and Tmall. That strategic hierarchy is being backed by capital on a scale that changes the opportunity cost of holding businesses outside it.

Alibaba committed in February 2025 to invest at least RMB380 Bn in AI and cloud infrastructure over three years, an amount it said exceeded its total spending on those areas over the previous decade. In May this year, Wu said the company expected to exceed the original investment plan as demand and early commercial returns from AI strengthened. Alibaba did not give a new spending ceiling.

The subsequent growth helps explain why Alibaba is prepared to go beyond that commitment. Cloud Intelligence Group revenue rose 38% YoY to RMB41.63 Bn in the March quarter, while AI-related products accounted for about 30% of external cloud revenue. External cloud revenue itself grew 40%. Alibaba expects AI-related products to become the cloud division’s primary growth engine and account for more than half of external revenue in about a year.

But the investment is also weighing on other areas.

Alibaba swung to an RMB848 Mn operating loss in the March quarter from an operating profit of RMB28.5 Bn a year earlier, while earnings came under pressure from investments in AI and cloud infrastructure, as well as continued spending on quick commerce.

That does not mean selling Lingxi is financing Alibaba’s AI build-out. Even Reuters’ reported consideration of more than $2 Bn is small beside a three-year AI and cloud investment programme worth roughly $56 Bn at May exchange rates, which Alibaba now expects to exceed.

The more important implication is the hurdle rate.

A business outside Alibaba’s core now has to compete for capital and management attention against an AI and cloud operation growing at nearly 40%, an expanding AI infrastructure commitment and a commerce business in which Alibaba is simultaneously spending heavily to defend and extend its position.

In that equation, being a digital technology business is not necessarily enough. The question becomes whether Alibaba itself remains the most logical owner. Lingxi suggests that, for gaming, the answer is no.

The disposal follows Alibaba’s earlier retreat from businesses associated with a very different period of expansion. It agreed in December 2024 to sell department-store operator Intime for RMB7.4 Bn, taking an estimated $1.3 Bn loss. Weeks later, Alibaba agreed to sell its 78.7% stake in hypermarket operator Sun Art to DCP Capital for $1.58 Bn. It had paid $3.6 Bn for control of Sun Art in 2020 as part of an effort to combine its digital capabilities with physical retail.

Those exits could readily be understood as Alibaba unwinding parts of an earlier bricks-and-mortar expansion. Lingxi pushes the rationalisation further.

Gaming is already a digital, technology-intensive business. Selling it suggests the boundary around Alibaba’s core is no longer simply separating digital assets from legacy ones. It is separating businesses that reinforce Alibaba’s chosen AI-commerce-cloud architecture from those that do not need to remain under its ownership.

Tencent Shows Gaming Still Has Growth

Tencent makes that distinction clearer. The Chinese internet group is also spending heavily on AI, but it still treats gaming as one of its principal economic engines. Tencent’s capital expenditure rose to RMB52.8 Bn in Q2 2026, from RMB31.9 Bn in the previous quarter, as it stepped up AI investment. Over the same period, domestic games revenue increased 17% to RMB47.3 Bn, supported by titles such as VALORANT and Delta Force.

It is not a like-for-like comparison. Gaming is structurally far more important to Tencent than it has ever been to Alibaba, and Tencent owns some of the world’s largest gaming franchises and investments. But that is precisely why the comparison is useful.

Alibaba and Tencent are confronting the same capital-intensive AI cycle from different starting points and arriving at different portfolio choices. Tencent is funding AI while preserving gaming as a core earnings engine. Alibaba is concentrating its own strategic centre around commerce, AI and cloud. The Lingxi sale, therefore, says less about the attractiveness of Chinese gaming than about Alibaba’s relative priorities.

Alibaba’s Non-Core Asset Becomes PE’s Core Bet

Trustar offers the other side of that calculation. The Asia-focussed private equity firm, formerly known as CITIC Capital, is acquiring Alibaba’s entire stake and has said it will support Lingxi’s existing management team. Zhou and his management team will continue to lead the studio, underscoring operational continuity after the ownership change.

For Trustar, the ownership equation can be much narrower. It does not have to decide whether gaming deserves capital relative to a RMB380 Bn-plus AI and cloud build-out, quick commerce or Alibaba’s ecommerce platforms. It can assess Lingxi on its gaming portfolio, intellectual property, management and prospects as an independently owned company.

That distinction matters as large technology groups concentrate resources around AI. What becomes non-core for Big Tech need not be an impaired asset. Instead, it can become an investable carve-out for financial owners with entirely different opportunity costs.

For Alibaba, however, Lingxi belongs to a bigger change already visible in Intime, Sun Art and the company’s increasingly explicit description of its strategic priorities.

The Alibaba of an earlier era sought expansion across ecommerce, physical retail, entertainment, logistics, local services, cloud computing and adjacent digital businesses. The Alibaba now emerging is putting a much clearer hierarchy around those assets as AI becomes both a growth opportunity and a major claim on capital.

That is what makes Lingxi revealing.

Alibaba does not obviously have to sell the gaming company, and the transaction should not be reduced to raising cash for AI. Instead, it has decided that as AI, cloud and commerce command more capital and management attention, gaming no longer needs to sit inside the group.

The test for Alibaba’s remaining businesses is not about whether they can create value, but whether Alibaba still needs to own them.