Alibaba Group reported a 75 percent drop in quarterly profit on Thursday as the Chinese technology giant poured money into artificial intelligence infrastructure, even as revenue from its cloud and AI services grew sharply.
The Hong Kong- and U.S.-listed company said profit for the April-June quarter fell to 10.5 billion yuan ($1.6 billion), down from 43.1 billion yuan ($6.4 billion) a year earlier. Quarterly revenue grew 9 percent to nearly 269 billion yuan (almost $40 billion), with revenue from AI cloud and compute services surging 45 percent to 48.4 billion yuan ($7.2 billion).
Capex Jump Weighs on Earnings
The dramatic profit decline was driven by a 75 percent jump in capital expenditures to 67.7 billion yuan (approximately $10 billion) during the quarter, as Alibaba aggressively expanded its AI data center capacity to meet soaring demand. The company attributed the spending increase to fluctuations in procurement cycles, an expansion of CPU compute capacity in anticipation of growing customer adoption of AI “agents,” and higher pricing for chip components.
Alibaba CEO Eddie Wu told analysts during the earnings call that the company expects AI and cloud revenue growth to accelerate in coming quarters alongside continued profitability improvements. “As we continue to ramp up our supply, our AI and Cloud revenue growth will accelerate further,” Wu said in prepared remarks reported by AP via Yahoo Finance.
Alibaba has committed to investing at least 380 billion yuan (about $56 billion) over three years in cloud computing and AI infrastructure, a plan announced last year. The company has set an ambitious target of surpassing $100 billion in annual AI and cloud revenue within five years.
Qwen AI Gains Traction
The investment push comes as Alibaba’s flagship Qwen large language model gains market traction. In July, the company previewed its Qwen3.8-Max model, which it described as “second only” to Anthropic’s Claude Fable 5 in capability benchmarks. Alibaba has also launched agentic AI services for commercial customers, positioning itself as a key provider of AI infrastructure in the Chinese market.
Despite the profit decline, investors showed some optimism about the company’s AI strategy. Alibaba’s shares initially rose in pre-market trading, though they reversed course as concerns about margin compression and the scale of spending set in, according to Reuters.
The results underscore the intense competition among Chinese technology companies in the AI space. Alibaba’s heavy investment mirrors moves by rivals including Baidu and Tencent, which are also spending billions to build out AI capabilities amid a global race to develop and deploy artificial intelligence systems.
Sources: AP via Yahoo Finance; Reuters; Alibaba earnings release
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