Alibaba reported a 75% drop in quarterly profits due to significant AI spending, despite overall revenue growth of 9%. The company’s cloud division, however, saw a robust 45% revenue increase, driven by AI-related product demand.
CEO Eddie Wu expressed confidence in Alibaba’s AI strategy to capture future growth, as the company also unveils powerful new AI models like Qwen3.8-Max, competing directly with industry leaders.
Alibaba Cloud Soars 45% Amidst AI Investment Surge, Profit Takes a Hit
Key Points:
- Alibaba reported a 9% overall revenue increase in the June quarter, with its cloud division experiencing a remarkable 45% growth.
- Significant investments in Artificial Intelligence (AI) impacted profitability, causing a 75% year-on-year drop in profits.
- The company's U.S.-listed shares experienced volatility in premarket trading following the announcement.
BEIJING – China's e-commerce behemoth, Alibaba, announced on Thursday that its profits plunged by 75% in the June quarter, largely attributed to substantial spending on Artificial Intelligence (AI) initiatives that are weighing on the tech giant's bottom line.
Capital expenditure surged by 75% to 67.7 billion Chinese yuan ($10 billion). The company cited a combination of factors for this increase, including the uneven timing of customer purchases, expanded CPU-compute capacity, and higher prices for a wide array of chip components.
Despite the profit dip, Alibaba's overall revenue saw a 9% rise, reaching 268.95 billion Chinese yuan, marginally exceeding the LSEG estimate of 268.88 billion yuan.
As the global AI race intensifies, companies across the technology sector are grappling with escalating costs associated with computing power and essential hardware. In a move to mitigate these rising costs, Alibaba Cloud reportedly announced in March a price increase of up to 34% for its AI computing and storage products, driven by surging demand.
Alibaba's U.S.-listed shares reflected the market's reaction to the news, showing volatility in premarket trading. The stock initially dipped 4% before recovering some losses, ultimately trading down 3.1%.
Alibaba's U.S. listed shares year-to-date.
The star performer within Alibaba's portfolio was its cloud division, which generated 48.4 billion yuan in revenue, marking a significant 45% increase year-on-year. Alibaba Cloud is positioned as a crucial component for the company's strategy to monetize the burgeoning field of artificial intelligence, mirroring the approaches of tech giants like Microsoft and Google.
"AI-related product revenue delivered 'triple-digit growth for the twelfth consecutive quarter,'" stated CEO Eddie Wu in a press release. "With our full‑stack AI strategy, we have put Alibaba in a superior position to capture the substantial growth of demand for artificial intelligence and AI compute," he added, expressing confidence in the company's strategic direction.
Competition Heats Up for AI Models
Alibaba operates across a diverse spectrum of industries, including semiconductor chips, cloud infrastructure, and large language models. The company's stock saw a rally earlier this month following the unveiling of its latest AI model, Qwen3.8-Max, which Alibaba described as its "most powerful" to date. Preliminary results shared by Alibaba indicated that Qwen3.8-Max achieved comparable, and in some instances superior, performance scores to Anthropic's Fable 5 model.
Further pushing the boundaries in AI development, Alibaba also released an AI model this month specifically designed to operate on consumer hardware, such as laptops. This marks a new frontier in the competitive landscape for AI model developers. The Qwen3.8-27B model, as reported by the company, demonstrates "excellent capabilities" in tasks including coding, professional work, research, and complex, long-horizon agentic operations.
