Alibaba Profit Falls 75% as AI Spending Weighs on Results
Revenue rose 9% to 268.95 billion yuan, slightly beating estimates, driven by growth in the cloud division.
Quick Look
Alibaba reported a 75% drop in June quarter profits due to heavy AI spending and rising hardware costs, even as revenue grew 9% to 268.95 billion yuan and cloud division sales jumped 45%.
AI-generated summary
Why It Matters
Tech companies face rising expenses for computing power and hardware amid the accelerating AI race.
China's Alibaba on Thursday posted a 75% fall in profits for the June quarter as AI spending weighed on the tech giant's results.
Capital expenditure was up 75% to 67.7 billion Chinese yuan ($10 billion), primarily driven by uneven timing of customer purchases, an increase in CPU-compute capacity and higher prices across a broad range of chip components, the company said.
Meanwhile, revenue rose 9% to 268.95 billion Chinese yuan, slightly higher than an LSEG estimate of 268.88 billion yuan.
As the AI race accelerates, companies across the sector are increasingly contending with rising expenses for computing power and hardware. In March, the company reportedly said it was raising prices for its AI computing and storage products by as much as 34% amid surging demand.
Alibaba's U.S. listed shares were volatile Thursday, initially falling 4% in premarket trading before paring losses. They were last down 1.6%.
Revenue at the tech giant's key cloud division totaled 48.4 billion yuan, up 45% year-on-year. Alibaba's cloud unit is seen as key to the company monetizing artificial intelligence, much like Microsoft or Google .
AI-related product revenue delivered "triple-digit growth for the twelfth consecutive quarter," CEO Eddie Wu said in a Thursday statement. "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.
The Chinese tech giant operates across a wide range of industries, including chips, cloud infrastructure and models. Shares rallied earlier this month after Alibaba unveiled what it described as its "most powerful" AI model Qwen3.8-Max. Alibaba shared results showing it delivered comparable, or sometimes better, scores than Anthropic's Fable 5.
This month also saw Alibaba release an AI model that's designed to run on consumer hardware like laptops — a new battleground for AI model developers. Qwen3.8-27B has "excellent capabilities" in handling coding, professional work, research, and long-horizon agentic tasks, the company said at the time.
Open Questions
- How long will heavy AI capital expenditure weigh on Alibaba's margins?
- When will AI investments translate into significant bottom-line profit growth?
