Investors typically recoil when a company’s core profitability collapses by more than three-quarters in a single quarter. Yet, in a striking display of market optimism, Alibaba’s share jumps despite core profit plunging 84% for the quarter ending in March.
The e-commerce giant reported that its adjusted earnings before interest, taxes and amortization (EBITA)—a key metric used to gauge underlying business health by stripping out one-time items—fell to 5.1 billion Chinese yuan (approximately $750.9 million). Despite this steep decline, the stock rallied 7.5% by midday Wednesday, recovering from an initial pre-market dip of 4%.
The disconnect between the balance sheet and the stock price suggests that Wall Street and Hong Kong investors are no longer prioritizing immediate margins. Instead, they are betting on Alibaba’s aggressive pivot toward artificial intelligence and its ability to dominate the “compute” infrastructure of China’s digital economy.
During the earnings call, CEO Wu signaled a long-term horizon for these expenditures, stating, “We see the ROI (return on investment) on this investment in the next 3-to-5 years as being extremely clear.”
The AI Engine: Cloud Intelligence and Qwen
The primary driver of investor confidence is the Alibaba Cloud Intelligence Group. While the core e-commerce business feels the weight of heavy investment, the cloud segment is accelerating. Revenue for the unit rose 38% year-on-year to 41.6 billion yuan, with adjusted EBITA for the segment jumping 57%.
Central to this growth is the development of the Qwen family of AI models. According to CFO Toby Xu, AI-related product revenue has achieved triple-digit growth for 11 consecutive quarters, contributing 9 billion yuan to the top line this quarter.
Alibaba is not merely building software. This proves securing the hardware. By developing its own AI chips, the company aims to mitigate “compute scarcity”—the global struggle to acquire enough high-end GPUs to train large language models. Wu emphasized that being the only AI cloud provider in China capable of delivering self-developed chips at scale provides a “structural advantage” for both revenue growth and gross margin improvement.
The company’s AI ambitions are now moving into the consumer experience. This week, Alibaba announced the launch of a Qwen-powered AI shopping assistant for Taobao, its flagship domestic e-commerce platform, aiming to personalize the shopping journey through generative AI.
The Cost of ‘Quick Commerce’
The plunge in core profit is not solely an AI story; it is also a story of a brutal war for delivery speed. Alibaba has poured resources into “quick commerce”—services promising delivery of goods in under an hour—to compete with other Chinese tech giants.
This strategic shift has created a temporary financial drag. Adjusted EBITA for the China e-commerce group dropped 40% year-on-year. While customer management revenue, the company’s largest contributor, grew by a modest 1%, the investment in instant delivery is showing signs of traction, with quick commerce revenue surging 57% year-on-year.
Overall China e-commerce revenue grew 6% during the March quarter, suggesting that while the cost of acquisition and delivery is high, the user base is expanding.
Financial Performance Breakdown: March Quarter
| Metric | Performance | Year-on-Year Change |
|---|---|---|
| Adjusted EBITA (Core) | 5.1 Billion Yuan | -84% |
| Cloud Revenue | 41.6 Billion Yuan | +38% |
| Cloud Adjusted EBITA | Not Specified | +57% |
| Quick Commerce Revenue | Not Specified | +57% |
| China E-commerce Revenue | Not Specified | +6% |
Calculating the Future Compute Spend
The scale of Alibaba’s commitment to AI is staggering. CEO Wu revealed that the demand for AI is so intense that the company expects to spend more on compute over the next five years than its previous three-year capital expenditure projection of 380 billion yuan.
To manage this, the company may not rely solely on direct capital expenditure (capex). Executives noted that some compute power could be rented as part of operating costs, providing more flexibility in how they scale their infrastructure.
The company has set aggressive targets for its AI monetization. Wu expects annualized recurring revenue (ARR) from AI model and application services to exceed 10 billion yuan in the June quarter, with a target of 30 billion yuan by the end of the year.
This strategy places Alibaba in a high-stakes race. By focusing on the full stack—from the silicon in the chips to the Qwen models and the Taobao interface—the company is attempting to build an ecosystem that is impervious to external supply chain shocks, particularly those stemming from international trade restrictions on semiconductors.
Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or legal advice.
The market will now look toward the June quarter results to see if the projected 10 billion yuan in AI recurring revenue materializes, serving as a critical test of whether the current profit plunge is a necessary sacrifice for future dominance.
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