- Alibaba Cloud grows 45% as AI emerges as Alibaba’s new growth engine.
- Heavy AI spending is squeezing profits today, but Alibaba is betting on a bigger payoff tomorrow
Alibaba’s latest quarterly results tell a tale of two very different businesses: a mature internet giant under pressure, and an AI business accelerating rapidly.
Revenue rose 9% year on year to 268.95 billion yuan ($37.4 billion), slightly ahead of expectations. But profits fell sharply. Adjusted EBITA dropped 30% to 27.33 billion yuan, while non-GAAP net income came in below market expectations.
The pressure is closely tied to investment. Alibaba’s capital expenditure surged 75% to 67.68 billion yuan, sending free cash flow to a negative 44.67 billion yuan. Its U.S.-listed shares fell more than 4% in pre-market trading after the results.
Yet one number stood out.
Alibaba Cloud‘s external commercial revenue jumped 45% year on year, its fastest growth in 22 quarters. AI-related revenue reached 12.38 billion yuan and continued to grow at triple-digit rates for the 12th consecutive quarter.
That 45% growth also puts Alibaba Cloud ahead of Microsoft Azure, which grew 43%, and Amazon Web Services, which grew 37%. It is the first time in nearly six years that Alibaba Cloud has outpaced both global rivals.
More importantly, the growth is becoming more profitable. Adjusted EBITA margin for the AI cloud and computing segment rose to 12%, up 133% from a year earlier.
Cloud is moving from “growth for scale” to “AI for profit.”
One AI stack
Alibaba’s latest restructuring makes the strategy clearer.
Its former Cloud Intelligence Group has been combined with chipmaker T-Head to form an AI cloud and computing business.
Its AI model labs, Qwen consumer business and Qwen office products have been brought together under a new AI labs and applications unit.
The logic is straightforward: connect chips, computing power, models and applications into one stack.
That integration is also why profits are under pressure.
Alibaba’s Qwen consumer app remains in heavy investment mode. The AI labs and applications division posted an adjusted EBITA loss of 13.86 billion yuan, compared with 3.22 billion yuan a year earlier, largely because of higher inference costs and increased AI investment.
But management appears willing to absorb those losses.
Alibaba CEO Eddie Wu told analysts that the global shortage of AI computing capacity is unlikely to fundamentally ease before 2030.
He argued that, given current AI product gross margins, AI infrastructure investments can be recovered within three years, potentially falling to 2.5 years or even two years as margins improve.
He also pointed to the longevity of AI infrastructure. V100 GPUs purchased in 2018 and A100 GPUs purchased in 2020 are still operating at close to full utilization, suggesting that the economic life of AI computing assets can extend well beyond their accounting depreciation schedules.
Alibaba’s third growth engine
Alibaba’s broader transformation can be viewed through three growth engines.
The first was e-commerce, which powered its growth for more than a decade. The second was cloud computing, which became increasingly important over the past five years.
Both are now facing structural limits.
E-commerce is locked in a fierce battle with Pinduoduo and Douyin for consumer spending. Cloud computing faces equally intense competition from Huawei Cloud and Tencent Cloud.
AI represents Alibaba’s third growth curve.
Unlike e-commerce, where scale and traffic are critical, AI cloud growth depends on the integration of computing power, models and applications.
From its Zhenwu chips and Qwen models to Qwen App and Qwen Office, Alibaba is attempting to build a full-stack AI ecosystem.
That could prove a deeper moat than another round of discounts or promotions.
Wu described the results as a “double-45%” quarter, referring to Alibaba Cloud’s 45% external commercial growth and the broader acceleration of AI-related demand.
The bigger message is that Alibaba is willing to sacrifice near-term profits to secure its position in the next computing cycle.
For a company whose previous growth engines are maturing, AI is no longer an experimental side bet. It is becoming the central logic of Alibaba’s next decade.
