Alibaba Stock Falls Then Rebounds 1.3% as Profit Plunges 75% and AI Spending Jumps 75%

Alibaba shares recovered from an early sell-off after investors weighed a steep decline in quarterly profit against accelerating growth across the company’s artificial intelligence and cloud businesses.

Alibaba’s US-listed shares opened approximately 5% lower at $122.29 and briefly touched $120.75 before reversing course. The stock eventually closed 1.3% higher at $130.53, outperforming a broader US market sell-off. The recovery suggests investors were willing to tolerate near-term margin and cash-flow pressure in exchange for stronger AI revenue growth.

Key Takeaways

• Alibaba’s revenue increased 9% to RMB268.95 billion, or approximately $39.64 billion.
• Net income dropped 75% to RMB10.44 billion, while non-GAAP net income declined 38%.
• Capital expenditure surged 75% to RMB67.68 billion as Alibaba expanded AI infrastructure.
• AI Cloud and Compute Services revenue increased 45% to RMB48.44 billion.
• The company recorded a free-cash-flow outflow of RMB44.67 billion.
• Alibaba stock reversed an early decline and closed 1.3% higher at $130.53.

Revenue Rises but Profitability Weakens Sharply

Alibaba reported revenue of RMB268.95 billion for the quarter ended June 30, representing year-over-year growth of 9%. The result was supported by AI infrastructure, cloud computing and quick-commerce demand.

The company’s bottom line was considerably weaker. Net income declined 75% to RMB10.44 billion, or approximately $1.54 billion. Net income attributable to ordinary shareholders fell 76% to RMB10.54 billion.

Operating income decreased 57% to RMB15.16 billion, while adjusted EBITA declined 30% to RMB27.33 billion. Alibaba’s operating margin consequently contracted from 14% a year earlier to 6%.

The headline profit decline was not entirely the result of AI spending. Alibaba also recorded lower gains from investment disposals and smaller mark-to-market gains on its equity holdings. Even after removing investment movements, impairments and other non-operating items, however, underlying profitability remained under pressure. Non-GAAP net income fell 38% to RMB20.72 billion, while non-GAAP earnings per ADS declined 42% to RMB8.52, or $1.26.

AI Cloud Revenue Accelerates 45%

The main positive surprise came from Alibaba’s reorganized AI Cloud and Compute Services division, which combines Alibaba Cloud with the company’s T-Head semiconductor operation.

Segment revenue increased 45% to RMB48.44 billion, or $7.14 billion. Revenue generated from external cloud customers also grew 45%, while AI-related product revenue reached RMB12.38 billion and delivered triple-digit growth for the 12th consecutive quarter.

Unlike some parts of Alibaba’s AI portfolio, the cloud division is already translating its growth into stronger profitability. Adjusted EBITA more than doubled, rising 133% to RMB5.63 billion, while its EBITA margin reached 12%.

Alibaba said demand was expanding across AI agents, foundation models, cloud infrastructure and software used to manage computing clusters containing different types of chips.

The company’s proprietary Zhenwu processors have now been adopted through Alibaba Cloud by more than 650 external customers across over 20 industries. The chips support workloads including model training, fine-tuning and inference.

AI Applications Generate a Growing Loss

The economics of Alibaba’s consumer and model-development operations were much less favorable.

Revenue from AI Labs and Applications increased 16% to RMB3.34 billion, but the division’s adjusted EBITA loss widened to RMB13.86 billion from RMB3.22 billion one year earlier. The increase reflected spending on AI development and higher inference costs associated with the Qwen application.

Alibaba launched Qwen3.8-Max in August, only three months after its previous flagship model. The open-weight system contains 2.4 trillion parameters and is designed for coding, research, multimodal tasks and autonomous AI agents.

The company also introduced QwenWork, an enterprise productivity agent connected to Alibaba Cloud and DingTalk. Alibaba said approximately 250 million users have experienced AI-powered shopping functions through Qwen’s integration with Taobao, Tmall and instant-commerce services.

These products could eventually create subscription, advertising and cloud-computing opportunities. For now, however, the AI applications division is consuming substantially more profit than the cloud operation generates.

Capital Expenditure Reaches Nearly $10 Billion

Alibaba invested RMB67.68 billion, or almost $10 billion, in capital expenditure during the quarter. That represented a 75% increase from RMB38.68 billion a year earlier.

Management attributed the increase to procurement timing, additional CPU computing capacity needed for anticipated adoption of AI agents and higher prices for a broad range of semiconductor components.

The spending contributed to a free-cash-flow outflow of RMB44.67 billion, compared with an outflow of RMB18.82 billion in the previous year. Operating cash flow remained positive and increased 11% to RMB22.95 billion, but it was insufficient to cover the infrastructure program.

Alibaba ended June with RMB474.51 billion, or approximately $69.93 billion, in cash and other liquid investments. That balance gives the company considerable capacity to fund its AI strategy, although prolonged negative free cash flow could eventually limit financial flexibility.

Alibaba previously committed RMB380 billion to cloud and AI infrastructure over three years and has set a target of generating more than $100 billion in annual AI and cloud revenue within five years.

E-Commerce Growth Remains Uneven

Alibaba’s combined e-commerce division generated revenue of RMB205.86 billion, up 4%, while adjusted EBITA declined 1% to RMB39.75 billion.

China e-commerce revenue fell 8% to RMB110.90 billion. Customer-management revenue, which includes merchant advertising and commissions, declined 7%, although Alibaba said it would have risen 1% without accounting changes connected to a new business-development program.

Quick-commerce revenue provided a major offset, increasing 45% to RMB53.30 billion as Taobao Instant Commerce and Freshippo expanded. Alibaba said Taobao’s delivery operation improved its unit economics through higher average order values and more efficient fulfillment.

International e-commerce revenue declined 1%, although AliExpress achieved an operating profit after reducing logistics costs. Global wholesale revenue increased 7%.

Why Alibaba Stock Recovered

Alibaba initially fell as investors reacted to the 75% profit decline, heavy capital expenditure and widening AI-application losses. The stock subsequently recovered as attention shifted toward the 45% growth in cloud revenue and the division’s 133% increase in adjusted EBITA.

The reversal indicates that the market is treating Alibaba increasingly as an AI infrastructure company rather than solely as a Chinese e-commerce platform. Its cloud operation is demonstrating both rapid growth and improving margins, but the company must still prove that its wider AI ecosystem can justify nearly $10 billion of quarterly investment.

Future share performance will depend on cloud growth, the profitability of Qwen services, free-cash-flow improvement and whether Alibaba’s proprietary chips can reduce its dependence on increasingly expensive external semiconductor supplies.