Alibaba offloads gaming arm for at least $1.5B as it chases a $100B AI revenue target

Alibaba is near a deal to sell Lingxi Games to Trustar Capital for at least $1.5 billion, according to an internal memo circulated Monday at Lingxi and reviewed by Bloomberg News. The memo confirms a transaction Bloomberg first reported last week, and Lingxi CEO Zhou Bingshu told staff the studio is being handed to Trustar so Alibaba can "better focus on its strategic priorities." Neither Alibaba nor Trustar responded to requests for comment, and the Business Standard carried the Bloomberg story on Monday.

The unit Alibaba is selling is not a loss leader. Lingxi's flagship is "Three Kingdoms: Strategy Edition," a massively multiplayer online strategy game developed in partnership with Japan's Koei Tecmo Holdings. The title is Lingxi's top-grossing franchise, and the Koei Tecmo relationship gives the studio a Japan-side development pipeline that is rare among Chinese gaming companies. A buyer taking on Lingxi is taking on a working asset with a hit title and a known co-development partner, which is a different bet than acquiring a turnaround candidate.

The sale trades a working asset for AI war-chest money. Under CEO Eddie Wu, Alibaba has publicly targeted $100 billion in AI revenue within five years, and the proceeds from Lingxi are headed into that stated ambition, not an achieved run-rate. At roughly 60 times the size of the Lingxi deal, the $100B target dwarfs the divestiture. The sale is one transaction inside a much larger capital bet, not the bet itself.

The pivot has a near-term anchor. This month Alibaba released its largest-ever AI model and claimed it performed on par with Anthropic in what the company framed as the latest Chinese breakthrough to challenge US rivals. The benchmark claim is Alibaba's own, not an independent measurement, and Chinese AI model evaluations remain disputed across the industry. The Lingxi sale, by contrast, is concrete: a near-signed deal, a named buyer, a stated price floor, and an internal memo already in staff hands.

Wu's reorganization runs wider than gaming. The Lingxi divestiture sits inside a corporate reshuffle that has shed non-core assets to narrow Alibaba's portfolio around AI and cloud computing. The strategic logic is straightforward: a $1.5B-plus cash injection funds both priority pillars and gives Wu a tighter story to sell to investors. Trustar, an Asia-focused private equity firm, gets a profitable MMO franchise and a Japan-side partnership, which is a turnkey asset rather than a turnaround.

The skepticism is mechanical, not ideological. The $100B target is aggressive relative to Alibaba's current AI and cloud run-rate, and selling a top-grossing franchise to chase it is not the same as solving a cost problem. The bet only clears if Alibaba's flagship model converts to enterprise revenue at a pace the benchmark dispute has not yet shown. The next data point is whether Trustar's deal closes at the stated floor or higher, and whether the proceeds are visibly redeployed into AI infrastructure rather than absorbed into general corporate cash.

Bloomberg's earlier reporting placed the deal at "more than $1.5B" if final terms clear the higher end of the range. The Lingxi CEO's memo confirms the handover; the price is the variable. The open question is whether one profitable divestiture can fund even the first year of a $100B five-year ambition, or whether the gaming portfolio keeps serving as the supply line.