In China's cloud computing market, a new contender is swiftly making its mark. According to the latest data from IDC, ByteDance's Volcano Engine has ascended to become China's second-largest provider of AI infrastructure and software, securing nearly 13% of the AI cloud services revenue market, which is valued at roughly $390 million, and trailing only behind Alibaba's 23% share.

The AI cloud services market is emerging as the fastest-growing sector within the cloud computing domain. In the first half of 2025, China's MaaS (Model as a Service) market surged to 1.29 billion yuan, marking a year-on-year increase of 421.2%.

Amidst this trend, ByteDance's Volcano Engine has emerged as a dark horse. Meanwhile, traditional cloud service behemoths are displaying divergent trajectories. Tencent has explicitly stated its intention to prioritize GPU resources for internal operations and scale back its external cloud service expansion.

On the other hand, Huawei has downsized its AI cloud business over the past year, with both companies witnessing a slight dip in their AI cloud market share in the first half of 2025.

The shifts in market share not only mirror corporate strategic decisions but also unveil the new dynamics of cloud computing competition in the AI era. As the fastest-growing market segment is rapidly infiltrated by new entrants, the responsiveness and adaptability of traditional giants are being put to the test.

ByteDance's meteoric rise in the AI cloud arena is closely tied to its hardware investments. Reports indicate that the company plans to invest 160 billion yuan in the AI sector by 2026, with roughly half allocated for acquiring advanced chips.

If approved, ByteDance will place an order for 20,000 Nvidia H200 chips. The performance of this chip is nearly sixfold that of the H20, which was previously the most advanced AI chip legally exportable to China.

The chip procurement strategy underscores ByteDance's commitment to computational power reserves. Meanwhile, Alibaba is also eyeing the purchase of Nvidia H200 chips, signaling the onset of a hardware-level arms race between the two titans.

ByteDance has established a chip design department with approximately 1,000 employees and has made strides in the tape-out of its proprietary chips, matching the efficiency of Nvidia's H20 chips.

In addition to hardware investments, ByteDance has adopted a distinctive technical approach. Contrary to the open-source strategies employed by some industry players, ByteDance keeps its most advanced models proprietary, necessitating enterprise clients to access relevant technical support via Volcano Engine.

This 'closed-source + proprietary' strategy aligns with Alibaba's move to adjust the openness of some of its leading models, gradually shifting the industry's competitive focus towards technical implementation effectiveness.

ByteDance's triumph in the AI cloud market owes much to its extensive consumer-side ecosystem. As of 2025, its Doubao APP has amassed over 100 million daily active users, ranking first in daily Token consumption in China.

ByteDance is forging a complete closed loop from consumer-grade applications to enterprise services. Its flagship product, HiAgent, has emerged as the core driver for market expansion, aiding enterprises in achieving intelligent upgrades.

As competition in the AI cloud market intensifies, the industry's focus is shifting from mere model parameter comparisons to full-stack capability contests. In 2026, Chinese internet giants' capital expenditures in the AI sector are projected to exceed $60 billion.

Tencent is leveraging the WeChat ecosystem to explore the integration of AI agent assistants with mini-programs. Alibaba is emphasizing the fusion of Tongyi Qianwen App's capabilities in 'commodity and service agent abilities' and 'local life/3D world models'.

Charlie Dai, Vice President and Principal Analyst at Forrester, remarked that ByteDance's growth trajectory and AI-driven strategy position it as a potential dominant player in the cloud computing industry, fueled by the accelerating market demand for AI.

This competition is far from reaching its climax. While Token call volume serves as a vital indicator of AI application activity, true enterprise-level AI transformation is still in its infancy.

According to analysis, the MaaS market currently constitutes only about 1% of the entire cloud computing market, with 99% of enterprises yet to fully embrace the field. This suggests that the real market competition and landscape reshaping may just be commencing.

References:

https://news.futunn.com/post/67674415/the-ai-entry-war-bytedance-has-gained-a-compelling-momentum?futusource=news_newspage_recommend&level=1&data_ticket=1768974614406870

https://36kr.com/p/3629004664030465

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