Alibaba has reported a sharp fall in quarterly profits as the Chinese technology giant ramps up investment in its AI infrastructure, the latest stage in its transition from a marketplace-led ecommerce company to an AI and cloud platform company with ecommerce as its largest application.
For the quarter ended June 30 2026, revenue rose 9% year-on-year to RMB268.9bn (£28bn), driven largely by strong performance in cloud computing and AI-related services. However, income from operations fell 57% to RMB15.2bn, while net income dropped 75% to RMB10.4bn. Adjusted EBITA declined 30% to RMB27.3bn as the company increased spending on technology and AI development.
New AI models and applications
Alibaba said AI-related product revenue delivered triple-digit growth for the twelfth consecutive quarter, helping external cloud revenue growth accelerate to 45%. The company has launched a series of new AI models and applications, including its QwenWork enterprise productivity platform and AI-powered shopping tools integrated into Taobao.
Alibaba is following a similar trajectory to Amazon, which tolerated lower margins to support heavy investing in its AWS data centres. Alibaba’s capital expenditure surged 75% year-on-year to RMB67.7bn and product development expenses increased to RMB22.5bn, up from RMB15bn a year earlier. The company said the spending was necessary to meet growing demand for AI services and agents.
Company background
Founded in 1999 by Jack Ma, Alibaba grew from an online marketplace into one of the world’s largest ecommerce and technology groups, with businesses spanning retail, logistics, cloud computing, payments and digital services. In recent years, the company has faced slower growth amid a challenging Chinese consumer market and increased competition, while simultaneously repositioning itself around cloud computing and AI.
Recent performance suggests that strategy is beginning to drive growth. Cloud revenue increased 45% during the quarter and Alibaba remains China’s leading AI cloud provider, according to the company. However, the latest results highlight the trade-off facing many technology groups, and sacrificing short-term margins for long-term profitability, betting heavily that the investment in AI will pay off.
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