Alibaba shares fall as AI spending dents earnings despite strong cloud growth

Shares of Alibaba Group fell more than 2.5% in premarket trading on Wednesday after the Chinese technology giant reported mixed quarterly results, with revenue growth supported by artificial intelligence demand but profitability sharply hit by aggressive investment spending.

Alibaba posted a 3% rise in fiscal fourth-quarter revenue, as its cloud and AI businesses continued to expand rapidly.

However, earnings fell far short of expectations as the company ramped up spending on AI infrastructure, technology development and its fast-growing quick commerce operations.

The company reported net profit of 23.5 billion yuan ($3.41 billion) for the quarter ended March 31, nearly doubling from a year earlier due largely to gains from investments.

But adjusted earnings painted a weaker picture.

Adjusted net income plunged nearly 100% year over year to 86 million yuan from 29.85 billion yuan a year ago.

Adjusted earnings before interest, taxes and amortization fell 84% to 5.1 billion yuan.

Adjusted earnings per American Depository Share came in at 0.62 yuan, well below analyst estimates of 5.79 yuan.

AI investments boost cloud growth

The steep decline in adjusted earnings was primarily linked to continued investments in its AI initiatives and quick commerce business, which focuses on deliveries within 60 minutes.

The company’s Cloud Intelligence Group remained a key growth driver, with revenue rising 38% year over year to 41.63 billion yuan ($6.13 billion), broadly in line with analyst estimates.

Like several global technology companies, Alibaba has been benefiting from rising enterprise demand for AI tools and cloud computing infrastructure.

The company has increasingly integrated AI capabilities across its businesses, including its Qwen chatbot platform.

Alibaba recently upgraded Qwen to allow users to shop directly through conversational interactions on its Taobao and Tmall marketplaces instead of browsing traditional product listings.

Earlier this year, the company separated its AI businesses from the cloud division and placed Chief Executive Officer Eddie Wu in charge of the newly created “Alibaba Token Hub” group as the company pushes to commercialize its AI ambitions.

Alibaba has said it aims to generate more than $100 billion in combined external revenue from its AI and cloud businesses over the next five years.

The company added that AI-related products now account for around 30% of external customer revenue within the Cloud division, indicating growing monetization of its AI offerings.

Retail pressures remain a concern

Despite the strong cloud performance, broader business trends remained uneven.

Revenue from Alibaba’s China e-commerce business, which includes the competitive quick commerce segment, rose to 122.22 billion yuan, slightly ahead of estimates of 119.85 billion yuan.

However, total group revenue came in at 243.38 billion yuan, missing an LSEG consensus estimate of 247.22 billion yuan, partly due to weaker international e-commerce growth.

The results underscore the balancing act facing many Chinese technology firms as they pursue costly AI expansion while navigating slower consumer spending and uneven global growth conditions.

For investors, Alibaba’s cloud and AI businesses are increasingly central to the company’s long-term growth narrative.

Analysts say the key question now is whether strong momentum in AI services can eventually offset slower retail growth and translate into more sustainable earnings expansion.