Alibaba Group (BABA) saw its core profitability tumble sharply in the March quarter, weighed down by massive capital outlays on technological innovation and e-commerce expansion, while company executives strongly defended its aggressive investment in artificial intelligence and highlighted long-term growth prospects.
During the latest earnings call, top leaders sought to justify Alibaba’s large-scale strategic spending, reassuring analysts that such hefty investments will deliver tangible returns over time.
“We see the ROI on this investment in the next 3-to-5 years as being extremely clear,” Alibaba CEO Wu stated on Wednesday’s earnings briefing.
The Chinese tech giant reported adjusted earnings before interest, taxes and amortization (EBITA) — a key metric reflecting underlying core business profitability — at 5.1 billion yuan, slumping 84% year over year. Excluding one-off gains and losses, the gauge accurately mirrors the operational health of Alibaba’s core segments. Excluding one-time items, its quarterly net income plummeted 99.7%, with profitability pressure largely stemming from heavy spending on tech layout and instant retail expansion.
Alibaba’s U.S.-listed shares traded choppily in premarket sessions, edging higher at the open before slipping into negative territory. The stock once dropped as much as 4%, before paring part of the losses later in trading. Its adjusted earnings per American Depository Share stood at 0.62 yuan, well below analyst expectations.
Sustained spending on instant commerce — the ultra-fast one-hour delivery service that has become a fierce battleground among China’s e-commerce giants — has dragged on domestic e-commerce profitability. For the March quarter, adjusted EBITA of Alibaba’s China e-commerce division fell 40% year over year. Even so, customer management revenue, the unit’s largest income contributor, rose 1% annually. Instant commerce revenue jumped 57% year over year, lifting overall domestic e-commerce revenue 6% higher.
For the quarter ending March 31, Alibaba’s total revenue fell short of LSEG consensus estimates, dragged by underperformance in its international e-commerce business.
Surging industrial demand for artificial intelligence is driving Alibaba to ramp up computing resource investment over the next five years, surpassing its earlier three-year capital expenditure plan of 380 billion yuan, Wu explained. He added that the expanded computing needs will not necessarily push up overall capital spending, as part of required computing power can be leased and classified as operating costs.
Heavy investments in AI semiconductors, data center infrastructure and its self-developed Qwen large language model lineup have already paid dividends across Alibaba’s cloud business. Fueled by robust AI demand nationwide, cloud computing has emerged as a standout growth pillar amid the group’s broader profitability headwinds.
Alibaba’s Cloud Intelligence Group maintained stellar momentum, posting a 38% year-on-year revenue increase to 41.6 billion yuan in the March quarter, with growth accelerating from the prior period. The segment’s adjusted EBITA also surged 57% annually.
“Our strategic investments continued to translate into business growth. Cloud Intelligence Group’s revenue continued to accelerate, with AI-related product revenue achieving triple-digit growth for the eleventh consecutive quarter,” Alibaba CFO Toby Xu said in an official statement.
The company booked 9 billion yuan in AI-related revenue for the quarter, now accounting for 30% of the Cloud division’s external customer revenue. Wu projected annualized recurring revenue from its AI model and application services will surpass 10 billion yuan in the June quarter and top 30 billion yuan by the end of the year, with Alibaba targeting over $100 billion in combined external revenue from AI and cloud businesses in the next five years.
Alibaba has pledged to sustain its bold pace of AI investment amid the industry’s technological race.
“We’ve been very resolute in making those investments over the past year and looking forward to the next two years, we intend to be equally resolute in continuing these investments because we see this as a critical window of opportunity,” a senior Alibaba executive commented on the earnings call.
As one of China’s frontrunners in homegrown AI chip development, Alibaba relies on its proprietary chips and Qwen models to build a lasting competitive edge.
“As the only AI cloud provider in China capable of delivering self-developed AI chips at scale, we have secured autonomy over our compute supply chain while providing customers with highly competitive AI inference and training services,” Wu noted.
“In an environment of compute scarcity, this structural advantage is favorable to our revenue growth and gross margin improvement.”
Alibaba has fully integrated AI capabilities across its business ecosystem. The firm recently launched a Qwen-powered AI shopping assistant for Taobao, allowing users to browse and complete purchases directly via the chatbot interface instead of traditional product listings. It has also spun off its AI business into an independent unit, led by CEO Wu, to accelerate profitability in artificial intelligence operations.
