Alibaba’s profit fell sharply in its fiscal first quarter as the Chinese technology group increased spending on artificial intelligence, even as demand for its cloud and AI services strengthened. Revenue rose 9% year over year to 268.95 billion yuan ($39.6 billion), while capital expenditure jumped 75% to 67.68 billion yuan as the company expanded AI infrastructure.
The earnings show the financial cost of Alibaba’s attempt to compete at the top end of China’s AI market. Net profit dropped 76% to 10.54 billion yuan, while adjusted profit fell 38% to 20.72 billion yuan. At the same time, revenue from AI cloud and compute services climbed 45% to 48.44 billion yuan, giving the company evidence that part of the spending is already generating demand.
Alibaba, $BABA, Q1-27.
AI Cloud jumped 45%, but the cost of the buildout drove a 19% EPS miss. Shares 3% lower premarket.
🟢 Revenue: ¥268.95B | ¥268.88B est. | +9% YoY
🔴 Adj. EPS: ¥8.52 | ¥10.53 est. | -42% YoY
☁️ AI Cloud: ¥48.44B | +45% YoY
🏗️ Capex: ¥67.68B | +75% YoY pic.twitter.com/0XfGuTIX5j— EarningsTime (@Earnings_Time) August 20, 2026
Alibaba has also continued developing its Qwen model family, including the recently launched Qwen3.8-Max. The results therefore present a clear trade-off: Alibaba is accepting weaker near-term profitability to build computing capacity and AI products that could become larger sources of revenue over time.
Alibaba’s AI spending can become profitable
The most revealing number is not the decline in profit, but the gap between AI investment and the revenue it is beginning to generate. AI cloud and compute revenue reached 48.44 billion yuan in the quarter, up 45%, while capital expenditure rose to 67.68 billion yuan. That means Alibaba is now spending heavily enough that the return on its AI infrastructure has become a central question for investors.
Alibaba’s cloud business had already reached a point where AI-related products represented about 30% of external cloud revenue in the previous quarter, while external cloud revenue was growing 40%. If AI demand keeps pushing customers toward higher-value computing services, the infrastructure Alibaba is building today can generate recurring revenue rather than remain a cost centre.
Alibaba therefore needs AI revenue to keep growing faster than its investment bill. A 45% increase in AI cloud revenue is encouraging, but a 75% jump in capital expenditure shows how much money is being committed before the full payoff is visible.
Why Alibaba’s AI bet is becoming a test for China’s tech industry
Alibaba is not making this investment in isolation. Tencent spent nearly $8 billion on capital expenditure in the second quarter, while China’s AI companies are competing for computing power, talent and customers. Frontier AI training costs are also expected to pass $1 billion by 2027, putting greater pressure on companies to turn models into commercial products rather than simply produce increasingly capable systems.
That changes the competitive test, as having a strong model is no longer enough if the cost of training and serving it keeps rising. Alibaba has an advantage that smaller AI developers do not, which is that its e-commerce and cloud businesses can help finance the AI push while giving Qwen access to millions of potential users and enterprise customers.
The numbers suggest Alibaba is trying to build that connection between AI and its existing businesses. If cloud growth remains above 40% while infrastructure spending starts to normalize, the current earnings squeeze could look like an investment cycle. If spending keeps accelerating without a similar rise in high-margin AI revenue, investors will have a harder time treating the losses as temporary.
Meanwhile, Alibaba reportedly banned employees from using Anthropic’s Claude Code in workplace environments beginning July 10, following allegations that the AI coding assistant contained a hidden mechanism capable of identifying users connected to Chinese networks.
Enjoyed this? Bookmark DeFi Planet, explore related topics, and follow us on Twitter, LinkedIn, Facebook, Instagram, Threads, and CoinMarketCap Community for seamless access to high-quality industry insights
Take control of your crypto portfolio with DEFI PLANET PRO, DeFi Planet’s suite of analytics tools.
