Alibaba Group reported a significant 75% drop in profit for the April-June quarter, falling to 10.44 billion yuan ($1.55 billion), largely missing analyst estimates. This sharp decline in net income was directly attributed to the company's substantial and ongoing investments in artificial intelligence infrastructure and related projects. Despite this profit dip, Alibaba's revenue saw a healthy 9% increase, reaching 268.95 billion yuan ($40.02 billion), slightly surpassing LSEG estimates.
The substantial AI spending also led to a 75% surge in capital expenditures, totaling 67.7 billion yuan ($10 billion). This increase was driven by factors such as uneven timing of customer purchases, enhanced CPU-compute capacity, and rising chip component prices. The company also reported a negative free cash flow of 44.7 billion yuan (over $6.6 billion), raising concerns among analysts like Citi regarding capital needs and investment returns. Alibaba's U.S. listed shares fell around 5% following the announcement.
Alibaba's cloud division, a key component of its AI strategy, saw revenue climb 45% year-on-year to 48.4 billion yuan. CEO Eddie Wu highlighted that AI-related product revenue achieved "triple-digit growth for the twelfth consecutive quarter," underscoring the company's full-stack AI strategy to capitalize on growing demand for AI and compute. Alibaba aims to quintuple cloud and AI revenue to $100 billion over five years, prioritizing AI growth over short-term profits. The company also recently released its "most powerful" AI model, Qwen3.8-Max, and an AI model for consumer hardware.
