Alibaba to Sell Gaming Unit Lingxi Games for at Least $1.5 Billion as It Doubles Down on AI

Alibaba Group is selling its gaming business in a deal worth at least $1.5 billion, as the Chinese e-commerce giant sharpens its focus on artificial intelligence and cloud computing. The company has reached a formal agreement to transfer its entire stake in Lingxi Games to Asian private-equity firm Trustar Capital, according to an internal memo distributed to staff on Monday and reviewed by Bloomberg News, Reuters, and The Wall Street Journal.

The transaction follows several rounds of negotiations. While Bloomberg reported the deal is worth at least $1.5 billion, Reuters, citing a person familiar with the matter, said Alibaba is expected to receive more than $2 billion from the sale. The memo did not disclose the deal's value or an expected closing date, nor did it detail regulatory approvals or other conditions.

A Strategic Pivot to AI

The divestiture is part of a broader effort by Alibaba to shed non-core businesses as it increases investment in AI and cloud computing. The company sold its stakes in hypermarket chain Sun Art and department-store operator Intime for a combined $2.6 billion in late 2024. Chairman Joe Tsai and Chief Executive Eddie Wu have described these sales as part of an effort to streamline Alibaba's portfolio and focus on businesses where the company has a clear competitive advantage.

Alibaba's cloud and AI businesses have become its standout performers. The company's Cloud Intelligence Group posted revenue of 41.63 billion yuan in its most recent quarter, up 38% year-over-year, with AI-related product revenue extending a streak of triple-digit year-over-year growth to 11 consecutive quarters. This remarkable growth trajectory underscores the success of Alibaba's strategic pivot and the growing demand for AI infrastructure and services in China.

Alibaba has committed to reaching $100 billion in combined annual revenue from cloud and AI within five years. This ambitious target reflects the company's confidence in the long-term growth potential of these sectors and its determination to become a global leader in AI technology.

This month, Alibaba released its biggest-ever AI model, claiming performance on par with global leader Anthropic PBC in the latest Chinese breakthrough to challenge US rivals. The release of this model demonstrates Alibaba's technical capabilities and its commitment to competing at the highest level in the rapidly evolving AI landscape.

The Deal Structure and Terms

The agreement to sell Lingxi Games to Trustar Capital is expected to close pending customary regulatory approvals and conditions. The deal's valuation, which some sources have placed at over $2 billion, represents a significant return on Alibaba's investment in the gaming unit.

Under the terms of the deal, Trustar Capital will acquire full ownership of Lingxi Games, including its intellectual property, development studios, and publishing operations. The private equity firm is expected to provide the resources and strategic guidance needed to support Lingxi's growth and expansion in the competitive gaming market.

It was not immediately clear whether Alibaba would retain any commercial ties with Lingxi after the sale, including publishing, cloud services, or technology partnerships. However, given the close integration between Alibaba's cloud services and its gaming operations, some form of ongoing relationship is possible.

Lingxi Games: A Studio in Transition

Guangzhou-based Lingxi Games is best known for Three Kingdoms: Strategy Edition, a multiplayer strategy title developed in collaboration with Japan's Koei Tecmo Holdings, whose franchises include Romance of the Three Kingdoms and Nobunaga's Ambition. The game has been a significant success in the Chinese market, building a loyal player base and generating substantial revenue.

However, Lingxi has faced challenges in recent years. The studio had previously explored external fundraising, but a process planned in late 2023 stalled after China proposed tighter rules for the online gaming sector. The proposed regulations, which aimed to limit spending and rewards in games, sent shockwaves through the gaming industry and created significant uncertainty for developers and investors.

Lingxi also underwent a management reshuffle in 2024. Zhou Bingshu, who had led the team behind Three Kingdoms: Strategy Edition, became CEO after founder Zhan Zhonghui departed. The leadership change signaled a new direction for the studio, with a focus on operational stability and strategic growth.

Zhou, who sent the memo to Lingxi staff on Monday, said the deal is "part of Alibaba's overall road map to sharpen its strategic focus." He added that he and Lingxi's management team would continue to lead the company following the ownership change, signaling operational continuity. "Alibaba is handing Lingxi to Trustar due to better focus on its strategic priorities," Zhou said, without disclosing the size of the deal.

Trustar Capital Steps In

Trustar Capital, formerly known as CITIC Capital, is an Asia-focused private-equity firm with a strong track record of investments in technology, consumer, and industrial sectors. The firm has deep expertise in the Chinese market and a network of relationships that can support Lingxi's growth.

According to Zhou, Trustar has the industry resources and operational expertise to support Lingxi's next stage of development. The private equity firm is expected to provide capital for expansion, strategic guidance on product development, and access to new markets and distribution channels.

The acquisition of Lingxi Games represents a significant addition to Trustar's portfolio. The gaming sector has shown resilience in the face of regulatory challenges, and Lingxi's established position in the Chinese market offers attractive growth potential.

A Broader Industry Trend

The sale of Lingxi Games is part of a broader trend in the Chinese technology industry. While gaming remains a lucrative sector attracting major technology investment, some companies are changing course. ByteDance sold its gaming studio Moonton earlier this year, signaling a similar strategic shift away from gaming and toward other priorities.

Both ByteDance and Alibaba have increased investment in AI, and their ChatGPT-like services rank among the most popular AI apps in China. The shift reflects a recognition that AI represents the next frontier of technology innovation and that significant investments will be required to compete effectively.

For Alibaba, the divestiture of Lingxi Games allows the company to focus its resources on businesses where it has a clear competitive advantage. The proceeds from the sale can be reinvested in AI research and development, cloud infrastructure, and other strategic priorities.

The Challenges Facing the Gaming Industry

The Chinese gaming industry has faced significant challenges in recent years. Regulatory scrutiny has intensified, with authorities imposing limits on game approvals, spending, and playtime for minors. The proposed rules on spending caps and rewards, which were later scaled back, created significant uncertainty for developers and investors.

Despite these challenges, the Chinese gaming market remains one of the largest and most dynamic in the world. The market is expected to continue growing, driven by increasing smartphone penetration, rising disposable incomes, and the popularity of esports and live-streaming.

For Lingxi Games, the transition to Trustar Capital offers an opportunity to reset and refocus. With a new owner and a clear strategic direction, the studio can build on its existing success and pursue new opportunities in the evolving gaming landscape.

Alibaba's Broader Transformation

The sale of Lingxi Games is the latest chapter in Alibaba's broader transformation. Since returning to the helm, Chairman Joe Tsai and CEO Eddie Wu have pursued a strategy of streamlining the company's portfolio, focusing on core businesses, and investing in future growth areas.

Under their leadership, Alibaba has sold off non-core assets, reduced complexity, and sharpened its strategic focus. The company has also invested heavily in AI, cloud computing, and international expansion, positioning itself for long-term growth.

The results of this strategy have been encouraging. Alibaba's financial performance has improved, with revenue growth accelerating and profitability strengthening. The company's cloud and AI businesses have emerged as key growth drivers, offsetting slower growth in its core e-commerce operations.

The Future of Lingxi Games

For Lingxi Games, the future looks bright. With Trustar Capital's support, the studio has the resources and strategic guidance needed to pursue new growth opportunities. The gaming market in China remains attractive, and Lingxi's established position in the sector provides a solid foundation for expansion.

The studio is expected to continue developing Three Kingdoms: Strategy Edition and exploring new game concepts. The partnership with Koei Tecmo remains an important strategic asset, providing access to valuable intellectual property and expertise.

Alibaba's decision to sell Lingxi Games to Trustar Capital reflects the company's strategic pivot toward AI and cloud computing. The deal, which is valued at over $1.5 billion, provides Alibaba with additional resources to invest in its core businesses while allowing Lingxi Games to pursue its own growth path under new ownership.

The transaction represents a significant milestone in Alibaba's transformation under Chairman Joe Tsai and CEO Eddie Wu. As the company continues to streamline its portfolio and invest in future growth areas, investors will be watching closely to see how the strategy unfolds.

For Lingxi Games, the sale offers an opportunity to build on its existing success and pursue new opportunities in the competitive gaming market. With Trustar Capital's support, the studio is well-positioned for continued growth and innovation.

As the Chinese technology industry continues to evolve, the sale of Lingxi Games serves as a reminder that companies must adapt and focus their resources on areas of competitive advantage. For Alibaba, that focus is increasingly on AI and cloud computing, and the proceeds from the sale will help fund the next phase of the company's growth.