Alibaba’s AI spending pushes quarterly profit down 75%

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Alibaba’s quarterly net profit fell 75% as the Chinese technology group sharply increased spending on artificial intelligence infrastructure, underscoring the immediate cost of its push to make AI and cloud computing major growth engines.

Net profit for the April-June 2026 quarter dropped to about 10.5 billion yuan from 43.1 billion yuan a year earlier, while revenue rose 9% to 268.95 billion yuan. Capital expenditure jumped 75% to 67.68 billion yuan, driven by additional computing capacity, chip purchases and higher semiconductor costs.

The spending pressure comes with a stronger growth signal. Alibaba’s AI cloud and computing services revenue increased 45% to 48.44 billion yuan during the quarter, while its AI model-as-a-service business has exceeded 16 billion yuan in annual recurring revenue.

Alibaba has committed 380 billion yuan, roughly $56 billion, to AI and cloud infrastructure between 2026 and 2029 and has already deployed about half that amount. The scale of the programme makes the company’s earnings increasingly sensitive to whether demand for AI computing continues to expand.

CEO Eddie Wu framed the spending as a capacity decision rather than an optional technology experiment. “We first need to make these capex investments to build out the necessary compute capacity,” he told analysts.

Alibaba expects AI-related capital expenditure to break even within three years at current average gross margins. It is also expanding the use of proprietary chips in its data centres, which management expects could reduce dependence on commercially sourced processors and improve margins.

For investors, that three-year target is now the number to watch. Strong cloud growth supports Alibaba’s AI strategy, but continued profit pressure will make revenue conversion, infrastructure efficiency and margins increasingly important measures of whether the investment is paying off.