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Alibaba shares dropped nearly 3% in Hong Kong trading on Friday after the Chinese technology giant reported a steep decline in quarterly profit, as aggressive artificial intelligence investment weighed on earnings and cash flow despite strong growth in its cloud business.
Alibaba shares traded around HK$125, underperforming the Hang Seng Index, which gained roughly 0.7%. Investors focused on the growing cost of the company’s AI expansion and weaker performance in its core e-commerce operations.
Net income attributable to ordinary shareholders plunged 76% year over year to RMB10.54 billion from RMB43.12 billion. The result was well below BofA Securities’ consensus estimate of RMB22.6 billion. Non-GAAP net income declined 38% to RMB20.72 billion, missing the RMB25.6 billion consensus forecast.
Revenue provided a brighter signal, rising 9% to RMB268.95 billion. However, adjusted EBITA fell 30% as Alibaba increased spending on technology and AI applications.
Alibaba Cloud and Compute Services emerged as the quarter’s standout performer. Revenue surged 45% year over year to RMB48.44 billion, while AI-related product revenue reached RMB12.38 billion and posted triple-digit growth for the 12th consecutive quarter. Cloud adjusted EBITA more than doubled to RMB5.63 billion, pushing the segment’s margin to approximately 12%.
The AI expansion came at a significant cost. Capital expenditure jumped 75% to RMB67.68 billion due largely to AI infrastructure, additional computing capacity and higher chip-component costs. Free cash flow deteriorated to an outflow of RMB44.67 billion.
US Tiger Securities said Alibaba’s results showed signs that AI investments are moving toward commercialization, while its core e-commerce operations remain an important profit foundation.
However, China customer-management revenue declined 7%, reflecting weaker transaction activity and softer commerce monetization. Quick-commerce revenue climbed 45%, with Alibaba reporting improving unit economics, but the business remains unprofitable.
Alibaba’s latest earnings therefore highlight a key challenge: rapidly expanding AI and cloud operations are strengthening its long-term growth prospects, but heavy investment and weaker e-commerce monetization continue to pressure near-term profitability and cash generation.
