Alibaba Group (BABA) posted dismal fiscal fourth-quarter earnings ending March 30 with a sharp drop in profits, yet its U.S.-traded shares pushed higher. Investors shrugged off weak near-term financials and turned bullish, betting heavily on the firm’s comprehensive AI strategy and its standout technological edges in artificial intelligence.
The latest earnings reveal clear business divides across its operations. Total revenue rose 3% year-over-year to $35.3 billion, or 11% excluding divestment impacts. Profitability saw a dramatic retreat: adjusted EBITDA tumbled 61%, while adjusted earnings per ADS collapsed 95% to a mere $0.01, marking a steep profit contraction.
Its flagship e-commerce business lost steam. Segment revenue edged up 6%, but adjusted EBITA fell 40%. Instant commerce stood out with a 57% revenue jump, propping up overall e-commerce top-line growth. Even so, heavy spending on this new venture has eaten deeply into sector profits. Stripping out instant commerce and wholesale lines, core e-commerce revenue actually declined, pointing to fading growth momentum in its traditional retail business. Management noted instant commerce is unlikely to hit unit economic profitability until late 2027, with heavy spending set to continue in the interim.
While core traditional businesses struggle, Alibaba’s AI business has emerged as its strongest growth catalyst and the key driver behind its stock rally. Sales from AI-linked products have logged triple-digit growth for 11 straight quarters. Its most market-acclaimed strength lies in AI chips, as the firm remains China’s only player capable of large-scale production of customized AI chips, granting it solid structural cost advantages and a clear lead in domestic AI hardware competition.
Backed by in-house chip capabilities, Alibaba Cloud Intelligence delivered robust results. Its quarterly revenue climbed 38% year-over-year, and adjusted EBITA jumped 57%, cementing cloud services as a vital new profit driver. Rather than focusing on isolated AI offerings, Alibaba is building a full-stack AI ecosystem. It has integrated its Qwen large language model across its business landscape and rolled out a full suite of enterprise-grade AI solutions.
The company has built out a complete AI value chain spanning computing infrastructure, self-developed large models, development tools and real-world business applications. It monetizes AI both by supplying external computing power and tech services, and by embedding AI into its own e-commerce, logistics and local service ecosystems to amplify operational efficiency and commercial returns. Unlike most pure-play AI firms reliant on outside funding, Alibaba generates steady cash flow from its mature e-commerce ecosystem. Strong internal cash reserves fully support ongoing spending on AI infrastructure, data center expansion and model research, securing long-term AI expansion plans without financing pressure.
With proven tangible demand and solid financial backing, Alibaba’s AI ambitions are no longer speculative, but revenue-generating realities that ease investor uncertainty. It stands out as a prudent AI investment alternative amid a sea of overvalued, volatile AI-themed stocks.
Nevertheless, notable headwinds remain. Domestic AI competition continues to intensify as established tech giants and emerging startups vie for market share. Persistent heavy investment in AI development will keep suppressing near-term bottom-line performance. Broader Chinese economic trends and shifting overseas investor sentiment also add external volatility to its outlook.
In conclusion, Alibaba faces tangible near-term earnings pressure, but its solid AI tech reserves, integrated industrial layout and stable cash flow underpin strong long-term growth potential. Though not the highest-growth AI play on the market, it offers a well-balanced risk-reward profile. In an environment where most AI stocks trade at stretched valuations, Alibaba presents compelling allocation value. Investors are advised to adopt a wait-and-see stance until its new growth segments translate fully into consistent profits.
