Alibaba’s AI and Cloud Surge Slashes Profit but Boosts Revenue

Alibaba Group saw quarterly net profit plunge 75% while cloud and artificial‑intelligence revenues surged 45%.

AI‑Centric Growth Playbook

■AI cloud and computing revenues reached 48.44 billion yuan.

■The model‑as‑a‑service (MaaS) line topped 16 billion yuan in annual recurring revenue.

■Management aims to break even on AI spend within three years by swapping external processors for in‑house T‑head chips.

Profitability and Cash‑Flow Strain

■Net income fell 75% to 20.7 billion yuan; non‑GAAP earnings dropped 38%.

■The European Commission fined AliExpress €550 million for a Digital Services Act breach.

■Free cash flow swung to ‑44.7 billion yuan, versus a +18.8 billion yuan surplus a year earlier.

Capital Expenditure and Outlook

■CAPEX rose 75% to 67.68 billion yuan for the quarter.

■Alibaba has spent roughly 50% of its planned 380 billion yuan AI‑infrastructure budget through 2029.

■The company projects AI‑related spending to reach breakeven in the next three years, leveraging higher gross margins from in‑house chips.

Market Reaction and Valuation

■Shares trade at a forward P/E of 20.49, a reasonable multiple given the cloud growth trajectory.

■Hedge‑fund ownership slipped to 102 funds; short interest remains low at 1.78% of float.

■Analysts note that rival AI‑focused stocks may offer higher upside with less downside risk.

Captain Rıza Deniz: Alibaba’s aggressive AI‑driven capex is an inevitable short‑term profit drag, but the shift to proprietary chips and expanding cloud margins should lift profitability and cash conversion over the medium term. Meanwhile, BDI and canal traffic trends suggest that despite a softening Chinese economy, global supply‑chain flows remain robust, supporting Alibaba’s international competitiveness.