Apple has chosen Alibaba as its artificial intelligence (AI) partner in China, marking a strategic move to regain lost ground in the world's largest smartphone market. Alibaba Group Chairman Joe Tsai confirmed the collaboration on Thursday at the World Governments Summit in Dubai, as per reports by The Information and Reuters.

"[Apple] talked to a number of companies in China, and in the end, they chose to do business with us. They want to use our AI to power their phones," Tsai said at the summit.

The deal, first reported by The Information on Tuesday, sent Alibaba and Apple shares surging. Alibaba's Hong Kong-listed stock reached its highest level since 2022 before closing 2.5% higher.

As per the Reuters report, Apple has been struggling in China, where its market share has shrunk due to stiff competition from domestic giants. The company's Greater China revenue fell 11% year-over-year to $18.51 billion in the fiscal quarter ending December 28, 2024. According to market analyst firm Canalys, Apple's annual smartphone shipments in China dropped 17%, slipping to third place behind Vivo (17% market share) and Huawei (16%).

A major hurdle for Apple has been the lack of AI-powered features in its iPhones, an area where competitors like Huawei have been gaining an edge, suggests the reports. While Apple has announced its 'Apple Intelligence' initiative—including an enhanced Siri, automatic email organisation, and audio transcription—these features have yet to launch in China. Analysts attribute the delay to Beijing's strict AI regulations, which require large language models to receive government approval and comply with content restrictions.

For Alibaba, the deal further cements its reputation as a leader in AI. The company's stock has climbed over 40% in early 2025, driven by the success of its Qwen 2.5 AI model, which it claims surpasses DeepSeek-V3, a cost-efficient competitor.