Alibaba Invests Heavily In AI, Hurting Earnings --- E-commerce giant continues to upgrade and integrate its Qwen model series

“Alibaba's earnings slumped in its fiscal first quarter as the Chinese e-commerce titan continued to invest heavily in artificial intelligence, racing to preserve its lead in the fast-growing sector.

 

The results come at a pivotal time for Alibaba, which has been sharpening its focus on AI. The company has continued to upgrade its Qwen model series and integrate it into its core ecosystem.

 

 It recently rolled out the Qwen3.8-Max, one of the largest open-source models globally.

 

The Hangzhou, China-based company said Thursday that net profit dropped 76% to 10.54 billion yuan, equivalent to $1.57 billion, while revenue grew about 8.6% from a year earlier to 268.95 billion yuan. Profit fell short of market expectations, though revenue beat estimates.

 

The company attributed the sharp drop in earnings to lower operating income, reduced net gains from the disposal of investments and other factors.

 

"We delivered a strong quarter, driven by the improving commercialization of our full-stack AI capabilities," Chief Executive Eddie Wu said.

 

Alibaba Cloud's external revenue growth accelerated to 45%, with AI-related product revenue delivering triple-digit growth for the 12th straight quarter, he said.

 

For the three months ended June, revenue from the company's e-commerce business rose 4%. Its AI cloud and compute services division recorded the fastest growth, with revenue jumping 45%, while AI labs and applications revenue climbed 16%.

 

Adjusted net profit -- a metric closely watched by analysts, as it reflects core business operation profitability -- fell 38% to 20.715 billion yuan. The measure excludes the effects of share-based compensation expenses, investment gains and losses, some impairments and other items.

 

The company said continued investments in AI infrastructure pushed capital expenditure for the quarter to 67.68 billion yuan, a 75% increase from a year earlier. The rise was due to fluctuations in procurement cycles, increased CPU-compute capacity and higher pricing of a range of chip components, it said.

 

The heavy spending coincides with an intensifying AI race in China as model developers accelerate releases of ever more powerful models.

 

"This trend reduces the defensibility of any single model, shifting the competitive focus to the platforms and infrastructure that can seamlessly host and manage them," Citi wrote in a note.

 

Alibaba on Thursday said its Zhenwu chips, developed by chip arm T-Head, achieved broad commercial adoption through Alibaba Cloud services from more than 650 external customers in industries spanning autonomous driving, internet and financial services.

 

As the company boosts spending on AI and e-commerce, it has in recent years pushed to make its noncore businesses profitable -- or sell them -- to strengthen its finances.

 

It reached an agreement to sell its videogame business, Lingxi Games, to Asian private-equity firm Trustar Capital, according to an internal memo The Wall Street Journal viewed this week. The deal would value the gaming studio at more than $1.5 billion.

 

The company has also been battling Meituan and JD.com in the food-delivery industry, though competition has eased in recent months.

 

Alibaba's American depositary receipts rose 1.3% in New York after the results.” [1]

 

1. Alibaba Invests Heavily In AI, Hurting Earnings --- E-commerce giant continues to upgrade and integrate its Qwen model series. Qu, Tracy.  Wall Street Journal, Eastern edition; New York, N.Y.. 21 Aug 2026: B4.