Alibaba's Profit Falls Over 75% As AI Spending Surges

Alibaba Group's net profit plunged more than 75% as the Chinese e-commerce giant poured money into artificial intelligence while its core retail business struggled with weak consumer spending in China, according to a Bloomberg report.

The company reported a 9% rise in revenue, matching market estimates and reflecting strong demand for computing capacity from its cloud division. However, net income dropped to 10.5 billion yuan, or $1.6 billion, a fall of nearly three-quarters from the previous year. Alibaba also posted a free cash outflow of more than $6.6 billion, driven by rising costs tied to AI projects and computing infrastructure. Following the results, Alibaba's US-listed shares fell 4% in pre-market trading.

Alibaba has strengthened its position as a global AI player this year, with its flagship Qwen model family becoming the world's most widely used. The Hangzhou-based company has spent tens of billions of dollars across chips, data centers and agentic AI systems as part of this push.

However, this effort to compete with the likes of Anthropic and OpenAI has weighed on margins, even as sluggish consumption in China continues to pressure its main online retail business.

Under Chief Executive Officer Eddie Wu, Alibaba is leaning further into AI and cloud computing as its primary growth engines. The company has consolidated most of its AI research and product teams under a new unit called Alibaba Token Hub, which Wu leads directly. Over the past two years, Alibaba has also been shedding non-core businesses, including the sale of its gaming unit Lingxi Games earlier this month.

This shift has made Alibaba one of China's largest spenders on AI infrastructure. Wu has said the company will prioritise AI-driven growth over near-term profitability, and plans to invest well beyond its previously announced budget of 380 billion yuan over three years. The goal, according to the company, is to grow its combined cloud and AI revenue fivefold to $100 billion over the next five years.

Pressure To Show Returns On AI Spending

Chinese AI companies, including Alibaba, continue to face pressure from investors to show clearer returns on their AI investments, even as many of them still offer AI models for free or at low cost compared with their US counterparts, the report added. Alibaba had pushed harder on monetisation earlier this year but has since shifted back toward growing its user base, releasing its latest flagship model, Qwen 3.8 Max, as an open-weight model. This marks the first time Alibaba has released the underlying values that guide decision-making for its largest AI model.

Alibaba's lead in AI over rivals could become clearer by 2027 if the improved returns on AI spending seen in May continue. A slowdown in the ongoing food delivery price war is expected to support operating cash flow, though record capital spending on chip production and AI applications may offset much of that gain.

Alibaba is reportedly working to boost monetisation by targeting paying subscribers for its coding and agentic AI platforms, aiming to compete in a market currently led by Tencent Holdings and ByteDance. ByteDance's Doubao, currently the most popular AI app in China, launched a subscription plan this year.

Alibaba operates a similar offering through its Qwen app, an AI assistant that helps with daily tasks such as shopping and payments. The app is expected to compete directly with a new AI agent being introduced on Tencent's WeChat platform in the coming quarters.