HKEX:9988

Alibaba Stock Falls 3% as Profit Slumps Despite Strong AI Cloud Growth

Alibaba Group (NYSE: BABA) shares fell about 3% Thursday after the company reported sharply lower quarterly earnings and heavy AI infrastructure spending, overshadowing strong revenue growth from its cloud business.

Profit Falls Sharply

June-quarter revenue increased 9% year over year to RMB268.95 billion. However, income from operations plunged 57%, while net income dropped 75% to RMB10.44 billion. Non-GAAP net income declined 38%, and non-GAAP diluted earnings per ADS fell 42% to RMB8.52.

Free cash flow was negative RMB44.67 billion, compared with negative RMB18.82 billion a year earlier, mainly due to increased cloud infrastructure spending.

AI Cloud Growth Remains a Major Positive

Alibaba's AI Cloud and Compute Services revenue reached RMB48.44 billion, with both total and external customer revenue growing 45%. AI-related product revenue reached RMB12.38 billion and posted triple-digit growth for the 12th consecutive quarter.

However, that growth requires substantial investment. Capital expenditures surged 75% to RMB67.68 billion as Alibaba expanded AI infrastructure and computing capacity.

Alibaba's 3% decline therefore appears primarily tied to the steep drop in earnings and heavier cash outflows. Strong AI and cloud growth remains encouraging, but investors appear concerned about the near-term cost of funding that expansion.
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Author
European Investor 08-20-26
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