Alibaba reported a 76% drop in net profit for its fiscal first quarter, as the company poured nearly $10B into AI infrastructure in a single three-month period.
Capital expenditure jumped 75% year-over-year to roughly $10B. Alibaba attributed the surge to procurement cycle shifts, increased CPU capacity, and higher chip component pricing. The company also registered a free-cash outflow of $6.6B for the quarter.
AI is growing fast, but so are the losses
Alibaba's cloud and AI division was the fastest-growing segment, with revenue up 45%. AI-related product revenue posted triple-digit growth for the 12th straight quarter.
The company expects annualized AI revenue to near $10B this quarter, up from roughly $7.3B in the April-to-June period.
Losses in its AI Labs and Apps unit more than quadrupled, reaching $2B. Adjusted EBITA in the Cloud Intelligence division rose by just $420M despite the massive capital outlay.
Bloomberg Intelligence analysts said Alibaba's AI business will generate cash losses for the next three years.
Citigroup analysts warned that growing capex and negative free cash flow "could raise concerns around capital needs and investment returns." A Citi note pointed out that rapid model releases across the industry reduce the defensibility of any single model, shifting competition toward platforms and infrastructure.
"Our AI business's capacity to self-fund and sustain itself is strengthening, giving us greater confidence to keep investing."
Eddie Wu, Alibaba CEO
Selling off the sidelines
To fund the AI push, Alibaba has been shedding non-core assets. It recently agreed to sell its gaming unit, Lingxi Games, to Asian private-equity firm Trustar Capital for more than $1.5B.
The company has also been working to reduce losses in food delivery, where competition with Meituan and JD.com has eased in recent months.
Alibaba's flagship Qwen model recently became the world's most popular model family. The company open-weighted its latest model, Qwen3.8 Max, marking the first time it released the values that guide its largest model class.
That move signals a return to prioritizing users over profit in a market where rivals ByteDance and Tencent are competing aggressively.
To win back investors, Alibaba will likely need to sustain cloud growth while cutting losses in adjacent businesses.