Alibaba's Bold AI Bet Tanks Profits by 75%!
Alibaba reported a 75% drop in quarterly profit due to massive investments in AI infrastructure, even as its AI-related revenue soared by 45%. The tech giant is heavily focused on AI advancements, aiming for over $100 billion in annual AI and cloud revenue within five years despite immediate financial impacts.The Chinese technology Giant Alibaba reported a significant 75% drop in profit for the latest quarter, reaching 10.5 billion yuan ($1.6 billion) compared to 43.1 billion yuan ($6.4 billion) in the same quarter last year.
This substantial decline is attributed primarily to massive investments in artificial intelligence (AI) infrastructure.
Despite the profit downturn, the company saw robust growth in its AI-related services, with revenue from these offerings increasing by 45%.
Overall quarterly revenue grew by 9% to nearly 269 billion yuan (approximately $40 billion), with AI cloud and compute services specifically contributing 48.4 billion yuan ($7.2 billion), marking a 45% increase.
The capital expenditures, crucial for building out AI infrastructure to meet burgeoning customer demand, surged by an impressive 75% to 67.7 billion yuan (about $10 billion) during the quarter, directly impacting profitability.
Alibaba explained that this significant increase in spending was due to several factors, including fluctuations in procurement cycles, the enhancement of CPU (central processing unit) compute capacity in anticipation of growing customer adoption of AI "agents," and higher pricing of chip components.
Alibaba CEO Eddie Wu expressed optimism for the future, stating in prepared remarks, "As we continue to ramp up our supply, our AI and Cloud revenue growth will accelerate further in the coming quarters, alongside continued improvement in profitability."
The company had previously announced plans to invest at least 380 billion yuan (about $56 billion) over three years in cloud computing and AI infrastructure.
Alibaba, initially an e-commerce and online retail powerhouse, is increasingly pivoting its focus towards AI technologies.
It has made considerable advancements with its flagship Qwen AI and has introduced "agentic" AI services for its commercial customers.
In July, the company previewed its Qwen3.8-Max AI model, which it stated was "second only" to Anthropic’s Claude Fable 5.
Looking ahead, Alibaba has set an ambitious goal to surpass $100 billion in annual AI and cloud revenue within the next five years.
Following the earnings report, Alibaba’s U.S.-traded shares experienced a decline of more than 3%.