Alibaba Group (NYSE:BABA)’s artificial intelligence push is delivering rapid growth in its cloud business, but the enormous cost of building the infrastructure behind it has weighed heavily on quarterly earnings.
The Chinese technology giant reported revenue of 268.95 billion yuan (US$40 billion) for the June quarter, up around 9% year on year, while net profit slumped about 75% to 10.5 billion yuan.
AI demand drives cloud growth
The standout was Alibaba’s AI cloud and computing operations, where revenue climbed 45% to 48.44 billion yuan (US$7.2 billion) as businesses increased spending on the computing capacity required to build and run AI systems.
The performance reinforces AI and cloud computing as an increasingly important growth engine for Alibaba, which has been expanding its Qwen family of AI models while building the infrastructure needed to support growing demand.
Alibaba has previously said it intends to invest at least 380 billion yuan, or around US$53 billion, over three years in AI and cloud infrastructure — more than it spent in those areas during the preceding decade.
Heavy investment comes at a cost
That expansion is becoming increasingly visible in Alibaba’s financials.
Capital expenditure surged 75% year on year to 67.7 billion yuan, around US$10 billion, during the quarter, reflecting spending on computing capacity, AI infrastructure and associated hardware.
The sharp rise in expenditure contributed to the fall in profit even as underlying demand for Alibaba’s AI services continued to accelerate.
For investors, the figures illustrate the central trade-off facing the world’s largest technology companies: AI is creating substantial new revenue opportunities, but competing for leadership requires tens of billions of dollars of infrastructure investment before the longer-term returns are clear.