Alibaba shares sank on Thursday after the Chinese technology giant reported a steep decline in quarterly profit, highlighting the increasingly expensive price tag attached to its push to become a major player in artificial intelligence.
The company said net income plunged 75% in the June quarter as spending on AI infrastructure and computing capacity surged.
The sharp profit decline came as Alibaba continued to expand its top line. Revenue rose 9% from a year earlier to 268.95 billion Chinese yuan, or roughly $39.7 billion, narrowly exceeding the 268.88 billion yuan expected by analysts surveyed by LSEG.
The bigger concern for investors was the amount of money Alibaba is pouring into the infrastructure needed to compete in AI. Capital expenditures jumped 75% to 67.7 billion yuan, or about $10 billion. Alibaba attributed the increase primarily to uneven timing of customer purchases, additional CPU computing capacity, and higher prices for a broad range of chip components.
Developing and operating sophisticated AI systems requires enormous amounts of computing power, data center capacity and advanced chips, putting pressure on cash flow even as demand for AI products continues to rise.
Alibaba has already sought to pass some of those costs on to customers. In March, the company reportedly raised prices for some AI computing and storage products by as much as 34% as demand accelerated.
At the same time, Alibaba is showing signs that its AI investments are translating into rapid growth in one of its most important businesses. Revenue from the company's cloud division climbed 45% year over year to 48.4 billion yuan.
The cloud operation is central to Alibaba's strategy for monetizing AI, giving the company a platform to sell computing capacity and AI services to businesses in a model similar to those pursued by Microsoft and Google. CEO Eddie Wu said AI-related product revenue recorded "triple-digit growth for the twelfth consecutive quarter."
"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," Wu said in a statement.
Still, the scale of Alibaba's spending is raising questions about how quickly those investments will produce returns. Citi analysts said Alibaba's disclosures for its AI Labs and Applications segment are giving investors greater visibility into the company's AI spending and the progress of its products.
But they also warned that the 75% increase in capital expenditures and negative free cash flow of 44.7 billion yuan could intensify concerns about future capital requirements and investment returns.
The earnings report arrives as competition among Chinese and U.S. AI developers intensifies. Earlier this month, Alibaba introduced Qwen3.8-Max, which it described as its "most powerful" AI model. The company released benchmark results suggesting the model performed comparably to, and in some tests better than, Anthropic's Fable 5.
Alibaba has also moved into models capable of operating directly on consumer devices. The company recently released Qwen3.8-27B, a model designed to run on hardware such as laptops. Alibaba said the model has strong capabilities in coding, professional tasks, research, and longer, agentic workflows.
