Alibaba shares fall 5% as AI spending drives 75% drop in net income
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- Alibaba posted a 75% fall in net profits for the June quarter, with U.S.-listed shares down 4.6% shortly after the market opened on Thursday.
- Capital expenditure rose 75% to 67.7 billion yuan ($10 billion), driven by an increase in CPU-compute capacity and higher prices across a broad range of chip components.
- Revenue rose 9% to 268.95 billion yuan, marginally above the LSEG analyst estimate of 268.88 billion yuan.
- Cloud division revenue reached 48.4 billion yuan, up 45% year-on-year, making it Alibaba's primary vehicle for monetizing AI.
- Eddie Wu, Alibaba's CEO, said AI-related product revenue delivered triple-digit growth for the twelfth consecutive quarter.
- Citi analysts flagged that capex's 75% surge alongside negative free cash flow of 44.7 billion yuan could raise investor concerns about capital needs and investment returns.
- Alibaba released Qwen3.8-Max, which it called its "most powerful" AI model, and Qwen3.8-27B, an AI model designed to run on consumer laptops — part of a broader pricing push that saw the company raise AI computing and storage product prices by up to 34% in March.
Why it matters: Alibaba is spending aggressively — $10 billion in capex and 44.7 billion yuan in negative free cash flow in a single quarter — to position its cloud unit, where revenue grew 45%, as China's answer to Microsoft and Google for AI workloads. Investors got the AI growth story but balked at the bill: the 75% profit collapse shows the cost of staying in the AI race is now hitting shareholder returns directly.
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