Business 5 min read By Alice Ashford
Alibaba shares fall after 75% profit plunge as AI spending weighs on earnings
Alibaba shares fell after reporting a 75% drop in quarterly profit, as heavy spending on artificial intelligence infrastructure weighed on earnings despite strong growth in its cloud division.
Alibaba Group shares declined after the Chinese e-commerce giant reported a 75% plunge in quarterly profit, as aggressive spending on artificial intelligence infrastructure overshadowed robust growth in its cloud computing business. The Hangzhou-based company said net income fell sharply in the December quarter, reflecting higher costs tied to its push into AI and data centre capacity.
The results underscore the tension facing major technology firms as they race to build out AI capabilities. Alibaba has been investing heavily in computing power, chips and cloud infrastructure to compete with rivals such as Tencent and Baidu, as well as global players like Microsoft and Amazon. While the spending is intended to secure long-term leadership in AI, it is currently squeezing profitability.
Revenue for the quarter rose, helped by a 45% jump in cloud revenue, which has become a key growth engine for the company. The cloud unit, which provides computing services to businesses and AI developers, has benefited from surging demand for large language models and related services. Alibaba has positioned its cloud division as a core pillar of its strategy, aiming to capitalise on the rapid adoption of generative AI across Chinese industries.
Despite the cloud strength, the overall profit decline alarmed investors, who sent the shares lower in trading. The market reaction highlights concerns that the cost of the AI build-out may outweigh near-term financial returns. Analysts noted that while cloud growth is encouraging, the scale of capital expenditure required to sustain it is substantial, and the payback period remains uncertain.
The company has been navigating a complex operating environment in China, where regulatory scrutiny of the technology sector has eased somewhat but economic headwinds persist. Consumer spending has been uneven, and competition in e-commerce remains intense, with rivals such as and Pinduoduo vying for market share. Alibaba has responded by streamlining operations, divesting non-core assets and focusing on its most promising businesses.
Alibaba's leadership has signalled that AI is a strategic priority, with management describing the technology as a transformative opportunity. The company has launched its own AI models and integrated them into its e-commerce platforms, cloud services and enterprise tools. It has also formed partnerships with other technology firms to expand its AI ecosystem and attract developers to its cloud platform.
The earnings report comes at a time when global investors are closely watching how Chinese technology companies balance innovation with profitability. US-listed shares of Alibaba have been volatile in recent months, reflecting broader concerns about geopolitical tensions, trade restrictions on advanced semiconductors and the overall outlook for the Chinese economy. The company's ability to access cutting-edge chips is a particular concern, as US export controls have limited the supply of high-end processors to Chinese firms.
Looking ahead, Alibaba faces the challenge of demonstrating that its AI investments will translate into sustained revenue growth and improved margins. The company has said it expects continued strong demand for cloud services, particularly from AI startups and enterprises seeking to deploy machine learning applications. However, the financial drag from these investments is likely to persist in the near term, keeping pressure on profitability.
The share price decline reflects a broader market reassessment of technology valuations, as investors weigh the potential of AI against the costs of building and maintaining the necessary infrastructure. For Alibaba, the path forward will depend on its ability to convert its early lead in cloud and AI into durable competitive advantages, while managing the financial discipline expected by shareholders.
