BEIJING—Alibaba Group Ltd. plans to invest $1 billion in cloud computing globally as it seeks to compete with Amazon.com in web services.

The e-commerce giant said part of the money will go to set up data centers in the Middle East, Japan and Europe. Alibaba's cloud-computing arm, Aliyun, opened its first overseas data center in Silicon Valley earlier this year and plans to set up another in the eastern U.S.

The funding will also be used to expand and support Alibaba's network of technology and telecommunications partners, which currently includes Intel Corp. and Singapore Telecommunications Ltd., the company said.

"This additional US$1 billion investment is just the beginning," said Daniel Zhang, Alibaba's chief executive officer, in a statement. "Our hope is for Aliyun to continually empower customers and partners with new capabilities, and help companies upgrade their basic infrastructure."

Most of Aliyun's global customers are Chinese companies operating outside the mainland, Aliyun President Simon Hu said last week.

Though it faces challenges attracting U.S. customers unfamiliar with the brand and its offerings, Mr. Hu said, Aliyun aims to become serious competition for Amazon.com Inc.'s cloud-computing unit, Amazon Web Services.

"We see that Amazon took 10 years to get to where it is today," Mr. Hu said last week. "Aliyun is just past its sixth year and we hope to match or outperform Amazon within three or four years."

Aliyun has quite a bit of catching up to do. Amazon Web Services' second-quarter sales came to $1.82 billion, up 81% from a year earlier—accelerating from the first quarter's 49% pace, Amazon reported last week. Its operating profit was $391 million, five times the year-earlier $77 million.

Alibaba has yet to report its results for the latest quarter, but cloud-computing revenue for the quarter ending in March was 388 million yuan ($63 million), up 82% from a year earlier. The company says that as of the end of June 2014, 1.4 million customers were using Aliyun services directly or through independent software vendors.

Analysts say Aliyun is considered a leader in public cloud services in China, with a client base made up mostly of small and midsize companies. It operates five data centers in the mainland and Hong Kong. But in markets like the U.S. it faces established rivals with deep pockets.

China's nascent cloud market is growing rapidly, according to consulting firm Bain & Co. In a report this month it forecast cloud spending in China could reach $20 billion by 2020, up from $1.5 billion in 2013, though challenges such as slower broadband speeds could hinder growth.

Globally, research firm IDC estimates that spending on cloud services will amount to $118 billion this year.

Write to Gillian Wong at gillian.wong@wsj.com

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