Alibaba Profit Drops 75% as AI Infrastructure Spending Surges

Alibaba's AI bet drives profit decline

Alibaba reported a sharp 75% decline in quarterly profit as the Chinese technology giant dramatically increased spending on artificial intelligence infrastructure. The company earned 10.5 billion yuan ($1.6 billion) in the April-June quarter, down from 43.1 billion yuan ($6.4 billion) in the same period last year, according to details first reported by the Associated Press.

The profit drop came despite strong revenue growth. Total quarterly revenue climbed 9% to nearly 269 billion yuan (approximately $40 billion), with AI cloud and compute services driving significant gains. Revenue from these AI-related services jumped 45% to reach 48.4 billion yuan ($7.2 billion).

Infrastructure investments weigh on margins

The primary factor behind the profit decline was a 75% surge in capital expenditures to 67.7 billion yuan (about $10 billion) during the quarter. Alibaba attributed this spending increase to several factors: fluctuations in procurement cycles, expanded CPU compute capacity in anticipation of growing customer adoption of AI agents, and higher chip component pricing.

CEO Eddie Wu signaled confidence that the investments would pay off. "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," Wu stated during the earnings conference.

Why it matters

Alibaba's willingness to sacrifice near-term profits for AI infrastructure reveals how seriously Chinese tech giants are taking the AI race. The company's trajectory mirrors patterns seen among U.S. cloud providers, where massive capital investments precede revenue acceleration. For enterprise buyers evaluating cloud AI platforms, Alibaba's aggressive capacity expansion suggests improved service availability and performance, though the sustainability of this spending pace remains uncertain.

Ambitious revenue targets amid market skepticism

The Hong Kong- and U.S.-listed company has committed to investing at least 380 billion yuan (approximately $56 billion) over three years in cloud computing and AI infrastructure. Alibaba has set an ambitious goal of surpassing $100 billion in annual AI and cloud revenue within five years.

The company has been advancing its flagship Qwen AI platform and recently launched agentic AI services for commercial customers. In July, Alibaba previewed its Qwen3.8-Max AI model, which the company positioned as second only to Anthropic's Claude Fable 5.

Investors responded cautiously to the earnings report, with Alibaba's U.S.-traded shares falling more than 3% on Thursday. The market reaction suggests concerns about whether the company's AI investments will generate sufficient returns to justify the current profit sacrifice.

The earnings details were first reported by the Associated Press.