China’s Alibaba reported a sharp 75% drop in profit for the June quarter on Thursday, as heavy investment in artificial intelligence put pressure on the technology giant’s earnings.
Capital expenditure climbed 75% to 67.7 billion Chinese yuan, or about $10 billion, with Alibaba pointing to uneven timing in customer purchases, expanded CPU-compute capacity and higher prices for a wide range of chip components.
Revenue, however, continued to grow, rising 9% to 268.95 billion yuan. That came in just above an LSEG estimate of 268.88 billion yuan.
The results underscore a broader challenge across the technology sector as the artificial intelligence race intensifies: companies are spending heavily on computing infrastructure, chips and storage to meet demand. In March, Alibaba reportedly told customers it was lifting prices for some AI computing and storage products by as much as 34%, reflecting the surge in demand.
Alibaba’s U.S.-listed shares fell 4.6% shortly after the market opened.
Alibaba’s U.S.-listed shares year to date.
Revenue from Alibaba’s core cloud business reached 48.4 billion yuan, up 45% from a year earlier. The cloud division is widely viewed as central to Alibaba’s push to turn artificial intelligence into a major revenue engine, similar to the strategies pursued by Microsoft and Google.
AI-related product revenue posted “triple-digit growth for the twelfth consecutive quarter,” CEO Eddie Wu said in a statement Thursday. “With our full‑stack AI strategy, we have put Alibaba in a superior position to capture the substantial growth of demand for artificial intelligence and AI compute,” he added.
Alibaba’s disclosures on the performance of its AI Labs and Applications segment provide investors with a clearer view of how much the company is investing in AI, and how its AI products are progressing, Citi analysts said in a Thursday note.
However, capex increasing 75% and negative free cash flow of 44.7 billion yuan could raise concerns around capital needs and investment returns, they said.
Competition heats up for AI models
The Chinese tech giant operates across a wide range of industries, including chips, cloud infrastructure and models. Shares rallied earlier this month after Alibaba unveiled what it described as its “most powerful” AI model Qwen3.8-Max. Alibaba shared results showing it delivered comparable, or sometimes better, scores than Anthropic’s Fable 5.
This month also saw Alibaba release an AI model that’s designed to run on consumer hardware like laptops — a new battleground for AI model developers. Qwen3.8-27B has “excellent capabilities” in handling coding, professional work, research, and long-horizon agentic tasks, the company said at the time.
