Heavy capital outlays for artificial intelligence infrastructure crushed the bottom line even as cloud revenue surged and overall sales beat expectations.
Alibaba Group Holding Ltd. reported a sharp profit drop for the June quarter as it poured nearly $10 billion into AI infrastructure. Net income tumbled more than 75% to 10.5 billion yuan ($1.6 billion) from 43.1 billion yuan a year earlier. Revenue rose 9% to nearly 269 billion yuan (about $40 billion), matching or slightly exceeding analyst estimates.
The results, released Thursday, show the cost of Alibaba’s aggressive pivot. Capital expenditures jumped 75% to 67.68 billion yuan (roughly $10 billion). The company cited fluctuating procurement cycles, higher CPU capacity for expected AI agent demand, and rising chip component prices. Free cash flow swung to an outflow of more than $6.6 billion.
Cloud Growth Offsets Retail Softness
Alibaba’s AI cloud and compute services delivered the brightest numbers. Revenue in that segment climbed 45% to 48.44 billion yuan. AI-related product revenue posted its 12th straight quarter of triple-digit year-over-year growth, reaching about 12.4 billion yuan. Management pointed to strong demand for model-as-a-service offerings and the commercialization of its Qwen model family.
Core e-commerce remained under pressure from weak Chinese consumer spending. Adjusted earnings per American Depositary Share came in at 8.52 yuan, missing estimates of about 10.53 yuan. U.S.-listed shares fell more than 4% in pre-market trading.
Long-Term Bet Over Short-Term Profits
CEO Eddie Wu has made clear the company will prioritize AI capacity over near-term earnings. Alibaba has already spent roughly half of its previously announced 380 billion yuan ($56 billion) three-year AI and cloud investment plan covering 2026-2029. Wu said the company expects to break even on AI-related capital spending within three years based on current average gross margins. He also signaled spending could exceed the original budget as the firm targets $100 billion in annual cloud and AI revenue within five years.
Wu told investors the build-out is necessary to capture future demand. The company is also pushing proprietary T-Head chips into its data centers to improve margins over time by reducing reliance on commercial processors.
Market Reaction and Outlook
Investors are watching whether the heavy front-loaded spending pays off before patience runs thin. Alibaba remains China’s largest cloud provider and a leader in open-weight Chinese AI models, yet the profit hit and cash outflow highlight the scale of the bet amid broader economic softness at home.
AI Disclosure: This article was created with the assistance of artificial intelligence tools and was reviewed and edited by the Glowls News editorial team before publication.