Alibaba Profit Falls 75% as Record AI Spending Fuels Cloud Growth and Drains Cash

Alibaba’s quarterly net profit fell 75% to 10.5 billion yuan, or about $1.6 billion, as the company accelerated spending on artificial intelligence infrastructure. Profit stood at 43.1 billion yuan a year earlier. Revenue rose 9% in the April-June period, showing that sales growth continued even as investment costs reshaped the company’s earnings profile.

The decline reflects a deliberate shift toward cloud computing and AI model services, alongside pressure on Alibaba’s established e-commerce operations. Free cash flow turned negative by more than $6.6 billion as capital spending and AI projects absorbed funds. The figures put Alibaba among the major technology companies accepting near-term financial strain to secure computing capacity and enterprise customers.

Alibaba Cloud provided the clearest growth engine during the quarter, benefiting from rising demand for computing power used to train and operate enterprise AI systems. AI-related services grew 45%, while broader cloud expansion helped lift group revenue despite weaker momentum in parts of Chinese online retail.

The company’s results show how AI spending is producing revenue before it produces comparable profit. Alibaba is buying servers, data-center capacity and related infrastructure while customers are increasing their use of cloud services. Bloomberg described quarterly capital spending as approaching $10 billion, underscoring the scale of the buildout. A separate company update reported faster cloud growth and continued investment in AI and consumption businesses, although its timing and quarter references differ from the April-June results described elsewhere.

Alibaba’s core e-commerce business remains under pressure from intense competition and softer consumer demand in China. That weakness makes the company’s AI and cloud expansion more consequential because new businesses must offset slower growth in the retail operations that historically funded Alibaba’s wider strategy.

The contrast is visible in operating performance. Moomoo’s review described single-digit growth in Chinese e-commerce and a 21% decline in EBITA, while international operations grew more slowly but narrowed losses. The same review said cloud revenue growth accelerated from 17.7% to 25.8% in the quarter it examined. These figures indicate a split performance: cloud is gaining speed, while retail profitability remains contested. Alibaba’s corporate update also framed AI, cloud and broader consumption as linked investment priorities rather than separate projects.

Alibaba’s leadership is presenting the AI buildout as a multiyear investment cycle, with returns tied to cloud capacity, enterprise services and the company’s own model ecosystem. Chief Executive Eddie Wu has said the company expects to reach break-even on AI-related investments, while executives have argued that the return profile will become clearer over a 3-to-5-year period.

The company previously set an AI investment plan of as much as 380 billion yuan, or roughly $56 billion, over 3 years. Alibaba has indicated that actual spending will exceed that target as demand rises. The approach places margin behind strategic position, a choice investors have accepted at points when management communicates a credible path to monetization. In May, Alibaba shares rose sharply after executives defended the investment strategy despite a steep fall in core profitability.

Alibaba’s results create a direct test for the economics of enterprise AI. Revenue growth and stronger cloud demand provide evidence that customers are paying for AI infrastructure, but the 75% profit decline and negative free cash flow show how expensive capacity expansion remains. The company must keep funding data centers and computing resources while proving that pricing, utilization and model services can produce durable margins.

The near-term risks include prolonged e-commerce competition, rising infrastructure costs and delays in converting AI demand into recurring earnings. The opportunity is a larger cloud business with deeper relationships across Chinese enterprises and developers. Alibaba’s share response has previously shown that investors can reward strategic spending when they believe returns are visible, but the latest cash outflow raises the standard for that confidence.

Alibaba’s next results will be judged on cloud growth, AI-service revenue, capital expenditure and the pace of cash recovery. Management’s stated 3-to-5-year return horizon gives the company room to invest, but quarterly execution will determine whether customers are absorbing the new capacity at profitable prices.

The company also needs to show that AI can reinforce rather than distract from its retail base. Stronger cloud utilization, improving international performance and clearer AI monetization would support the strategy. Continued margin erosion or expanding cash losses would intensify questions about the scale and timing of the investment plan. Alibaba’s transition therefore rests on one measurable outcome: whether rapid AI demand becomes profitable infrastructure revenue.