Alibaba Profit Falls 75% as AI Capex Surges, Cloud Growth Hits 45%

Alibaba posted a 75% drop in quarterly profit Thursday as heavy AI infrastructure spending ate into earnings, even as the company's cloud business kept accelerating. Capital expenditure rose 75% to 67.7 billion yuan (about $10 billion), driven by higher chip prices, expanded compute capacity, and uneven timing of customer purchases. Revenue for the quarter rose 9% to 268.95 billion yuan, edging past the 268.88 billion yuan analysts polled by LSEG had expected. U.S.-listed shares were volatile, initially falling 4% before recovering slightly, then settling down more than 6%.

The headline profit miss masks a stronger underlying story in Alibaba's cloud unit, which is central to how the company monetizes AI. Cloud revenue jumped 45% year-over-year to 48.4 billion yuan, and CEO Eddie Wu said AI-related product revenue delivered triple-digit growth for a twelfth consecutive quarter. The company has also been aggressive on the model side, releasing its Qwen3.8-Max model this month with results it says are comparable to or better than rival systems, plus a lighter Qwen3.8-27B model built to run on consumer laptops. Citi analysts flagged the flip side: negative free cash flow of 44.7 billion yuan alongside the capex surge raises real questions about near-term capital needs and eventual investment returns.

For investors, this is the same AI-spending tension playing out at U.S. hyperscalers now showing up in China's biggest cloud player -- heavy upfront investment pressuring near-term profitability in exchange for a bet on long-term AI infrastructure dominance. The 45% cloud growth number is the one to watch quarter over quarter; if it keeps outpacing capex growth, the market will eventually reward the buildout rather than punish it. Until then, expect continued volatility in Alibaba shares tied to how investors weigh capex-driven margin compression against AI monetization progress. This is a name for investors comfortable with China-exposure risk and a multi-quarter time horizon, not a trade for anyone expecting near-term earnings stability.