Investors have been riding high on China's AI capabilities since January, when DeepSeek unveiled a state-of-the-art chatbot seemingly at a fraction of the cost assumed necessary by Western industry leaders.
Alibaba says its newest AI model announced on Thursday morning, called QwQ-32B, has a "comparable performance" to DeepSeek while also requiring far less data to run.
Shares in the e-commerce powerhouse rose more than seven percent before a midday pause in trading at Hong Kong's Stock Exchange.
China's vast tech industry has enjoyed several weeks of revamped market confidence.
Alibaba co-founder Jack Ma was seen meeting Chinese President Xi Jinping at a symposium for the country's leading business figures last month, ending years out of the spotlight.
The billionaire entrepreneur had criticised government regulations in late 2020, shortly before Beijing scuttled Alibaba's imminent blockbuster IPO.
A broader regulatory crackdown that followed wiped more than a trillion dollars off the value of China's major tech firms.
But Ma's inclusion in last month's meeting hinted at his potential public rehabilitation following his tangle with regulators.
DeepSeek's arrival on the scene this year has pleased authorities, who have intensified efforts to revitalise lacklustre activity in the world's second-largest economy in recent months.
Alibaba's QwQ-32B joins another recent entrant, Tencent's Yuanbao, in an enhanced domestic rivalry with DeepSeek.
In a potential boost for the firm, Beijing promised on Wednesday to enhance support for consumption, which has been sluggish in China since the Covid-19 pandemic.
Hangzhou-based Alibaba -- operator of some of China's top online shopping platforms -- said last month it planned to spend more than $50 billion on AI and cloud computing over the next three years.
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