Alibaba Group experienced a significant decline in net profit during its fiscal first quarter, with figures showing a 75% to 76% drop to approximately $1.57 billion to $1.6 billion, compared to the same period last year. This sharp decrease was primarily attributed to heavy investments in artificial intelligence infrastructure. Despite the profit slump, the Chinese e-commerce and technology giant saw an 8.6% to 9% increase in revenue, reaching about $39.9 billion to $40 billion, slightly surpassing analyst estimates.
The company's capital expenditure surged by 75% year-over-year, totaling around $10 billion. This substantial spending was driven by the timing of customer purchases, an expansion in CPU-compute capacity, and higher prices for various chip components, all necessary to support its aggressive AI development. The increased investment also resulted in negative free cash flow of $6.6 billion, compared to an outflow of $2.8 billion a year earlier.
Alibaba's cloud division, a key segment for monetizing AI, demonstrated strong growth with revenue increasing by 45% to $7.2 billion. AI-related product revenue, in particular, achieved triple-digit growth for the twelfth consecutive quarter. CEO Eddie Wu stated that Alibaba's full-stack AI strategy positions the company to capitalize on the growing demand for AI and AI compute. However, analysts from Citi noted that while the disclosures on AI Labs and Applications provide clarity on investments, the significant capital expenditure and negative free cash flow raise concerns about future capital needs and investment returns.
Investor reaction was mixed, with Alibaba's U.S.-listed shares initially falling by 4.6% to 5% shortly after market open, before recovering to close 1.3% higher. Similarly, shares in Hong Kong experienced volatility. The company's push into AI comes as its traditional e-commerce engine loses momentum, with China e-commerce revenue falling 8.3% and customer management revenue declining 7.5% during the quarter. This highlights Alibaba's strategic pivot towards AI and cloud services as future growth drivers.
