Anthropic Accuses Alibaba of Massive AI Data Distillation Attack. How to Play BABA Stock Here.

The artificial intelligence (AI) race between the U.S. and China just got a lot more combustible. Anthropic, one of the United States' most closely watched AI startups, has gone on the offensive against Alibaba (BABA), the Chinese tech giant behind Qwen AI. 

Specifically, Anthropic recently filed a formal letter with U.S. senators accusing Alibaba of orchestrating what it called the largest-known effort by a Chinese company to illicitly siphon the capabilities of a leading U.S. AI model. For investors watching BABA stock, this is not a story to ignore.

What Is AI Distillation and Why Does It Matter?

Before digging into the specifics, investors should understand what distillation means in the context of artificial intelligence.

Building a cutting-edge AI model from scratch costs hundreds of millions of dollars in computing power, research talent, and years of development. Distillation involves training a smaller, cheaper model using outputs generated by an existing, more powerful one. The result is a model that mimics the capabilities of the original at a fraction of the cost.

When done without permission, it is essentially a form of intellectual property theft — and U.S. AI labs are increasingly sounding the alarm about it happening on an industrial scale.

Anthropic previously flagged three separate distillation campaigns traced back to Chinese AI developers DeepSeek, Moonshot, and MiniMax, according to a February company blog post. But what Alibaba allegedly pulled off, the company says, was even bigger.

Now, Anthropic is calling on cloud providers, policymakers, and industry peers to work together to stop the practice. 

Anthropic Says Alibaba Used 25,000 Fake Accounts to Target Claude

According to CNBC, which confirmed details of the letter Anthropic sent to Sen. Tim Scott (R-S.C.) and Sen. Elizabeth Warren (D-Mass.) on June 10, operators allegedly tied to Alibaba and its Qwen AI lab carried out nearly 28.8 million exchanges with Claude models. These operators did so using roughly 25,000 fraudulent accounts over a span of about six weeks, from late April through early June 2026.

Bloomberg noted that Anthropic said the campaign zeroed in on Claude's most valuable capabilities, including software engineering and agentic reasoning. These are precisely the functions that are driving the fastest commercial growth in the AI industry right now.

Anthropic described the effort as brazen and illicit, and said it took place after the White House Office of Science and Technology Policy published a memo in April warning that the U.S. would act to stop Chinese companies from exploiting outputs from U.S. AI models. 

Alibaba has not commented on the allegations so far, per both CNBC and Bloomberg.

The Political and Market Fallout for Alibaba Stock

Earlier this month, the Pentagon added Alibaba to its list of companies that allegedly support China's armed forces. Alibaba pushed back strongly, saying it has no military affiliation, and it filed a lawsuit last week seeking removal from the list. Now, Alibaba is also facing fresh fire from one of the United States' most prominent AI companies, with Congress already moving to respond. 

Bloomberg reported that senators from both parties are working to attach an amendment to must-pass defense legislation that would sanction any Chinese firm found to be improperly accessing U.S. AI model outputs. BABA stock fell almost 5% on June 25 and is down by more than 9% for the past five days. 

Meanwhile, Alibaba's AI business has been growing fast. During the company's fiscal fourth-quarter 2026 earnings call, CEO Eddie Wu said the cloud unit grew external revenue by 40% year-over-year (YOY), with AI-related product revenue now accounting for 30% of that total. The company projects AI-related model and application services will hit an annualized revenue run rate of RMB 30 billion ($4.3 billion) by year-end.

That momentum makes the accusations of distillation even more significant. If U.S. lawmakers push through new sanctions or restrictions targeting Chinese AI firms, Alibaba's ability to access U.S. cloud infrastructure and enterprise customers could take a real hit.

Anthropic, for its part, is calling for stronger export controls on advanced AI chips, clearer antitrust rules to allow U.S. companies to share information about distillation attempts, and financial penalties for firms caught stealing model outputs.

The company put it plainly in its letter: Failing to act risks letting China close the gap on the U.S. in artificial intelligence, with consequences for national security.

Is BABA Stock Undervalued?

Analysts tracking BABA stock forecast revenue to increase from $138.2 billion in fiscal 2025 to $205.6 billion in fiscal 2029. In this period, adjusted earnings are projected to expand from $9.08 per share to $11.63 per share. If BABA stock is priced at 15 times forward earnings, it could surge more than 70% within the next few years.

Out of the 26 analysts covering BABA stock, 21 recommend a “Strong Buy” rating, one recommends a “Moderate Buy,” and four recommend a “Hold” rating. The average Alibaba stock price target is $184.09, which represents 94% potential upside from current levels.