Alibaba grew its revenue, expanded its cloud business by 45%, and logged a twelfth straight quarter of triple-digit growth in AI product sales. Then it watched net profit fall off a cliff. Income for the June quarter dropped about 75% to 10.54 billion yuan, roughly $1.55 billion, and investors marked the US-listed shares down around 5%.
The damage sits in one line of the accounts. Alibaba spent 67.68 billion yuan, close to $10 billion, on capital expenditure in a single quarter, up about 75% on a year earlier, almost all of it pouring into data centres and AI chips. This is the AI capex boom arriving on an income statement as pain rather than promise, and it is a dress rehearsal for a question every cloud shareholder on earth is about to face.
The good half of the ledger
Strip out the spending and the business is doing what bulls hoped. Group revenue rose 9% to 268.95 billion yuan, about $39.64 billion. Cloud grew 45% as companies rushed to rent AI computing power, and AI-related product revenue has now posted triple-digit growth for twelve consecutive quarters. Alibaba’s cloud arm is arguably the clearest AI winner in China, and demand is plainly not the problem.
Even the messy consumer side had a bright spot. China quick-commerce revenue surged 45% to 53.30 billion yuan as Alibaba leaned into instant delivery, though core China e-commerce revenue slipped 8%, a reminder that the domestic shopper remains cautious.
The cost of keeping up
So why torch the profit line? Because standing still is not an option. To compete with Tencent and ByteDance at home and the American hyperscalers abroad, Alibaba has committed to a vast AI build-out, and chips are getting pricier while US export controls complicate what it can even buy. Management is betting that today’s spending buys tomorrow’s cloud dominance. That is the same wager Microsoft, Amazon and Alphabet are making, only Alibaba’s smaller profit base makes the hit look uglier.
The market’s reaction says the patience has limits. A 75% profit drop is tolerable if investors trust the payoff and jittery if they do not. For now they are giving Alibaba the benefit of the doubt, marking the stock down modestly rather than dumping it, precisely because the cloud growth backs up the spending story.
Why this matters beyond China
Alibaba reported before Nvidia, before the American cloud giants’ next updates, and before the market has fully priced whether AI capex ever earns its keep. Every hyperscaler is now spending like Alibaba, funnelling tens of billions into infrastructure on the promise of future returns. Alphabet and Amazon alone are steering roughly $420 billion toward AI. When one of them shows the profit cost this starkly, it is a useful preview of the trade-off buried in all of their accounts.
The bull reading is that this is investment, not waste, and the revenue is already visibly compounding. The bear reading is that a 75% profit drop for 45% cloud growth is a rotten exchange rate that gets worse if AI demand cools. Both can be true for a while. The next few quarters decide which one wins. (Not investment advice.)
Did you know: Alibaba’s roughly $10 billion of quarterly capital spending is larger than the entire annual revenue of many companies in the S&P 500.
Sources
- CNBC: Alibaba shares fall as AI spending drives 75% profit drop
- Business Wire: Alibaba June quarter 2026 results
- Investing.com: Alibaba revenue up 9%, profit down 75%
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