Alibaba Net Profit Plunges 75 per Cent on Heavy AI Infrastructure Spending

Alibaba Group reported a 75 per cent plunge in quarterly net profit to June as capital expenditure on artificial intelligence surged. Group revenue rose 9 per cent to 268.95 billion yuan, matching market forecasts while cloud computing gains offset slowing domestic commerce.

Capital spending climbed 75 per cent year on year to 67.68 billion yuan in the three months to June 30. The Hangzhou-based group has already deployed half of its 380 billion yuan AI investment budget scheduled through 2029, buying server processors and expanding data centres to handle surging enterprise demand.

Surging Compute Costs and In-House Silicon

Chief executive Eddie Wu said the company expects to break even on its AI-related capital expenditure within three years at current gross margins. Revenue from AI cloud and compute services jumped 45 per cent to 48.44 billion yuan during the quarter, with annual recurring revenue from AI model-as-a-service exceeding 16 billion yuan.

To rein in hardware expenses, Alibaba is replacing commercially procured processors with silicon built by its in-house chip division, T-head. The proprietary semiconductors are now running across clustered server racks for both model training and inference workloads, which management expects will widen operating margins as deployment expands.

The margin squeeze mirrors the heavy infrastructure spending across Asia’s technology sector, where hyperscalers and platform operators are absorbing massive upfront costs before enterprise software monetization matures. Alibaba is defending its cloud dominance against domestic rivals Tencent and Baidu, while simultaneously backing frontier model developers such as Moonshot to anchor future compute traffic to its ecosystem.

Reorganisation and Core Retail Headwinds

Adjusted earnings per American Depositary Share fell to 8.52 yuan, trailing the 10.53 yuan consensus tracked by LSEG. Softer consumer demand in mainland China continues to weigh on the core marketplace division, prompting chief financial officer Toby Xu to highlight macroeconomic friction across domestic online shopping.

Wu now leads the dedicated Alibaba Token Hub following an internal restructuring that split operations into four divisions: e-commerce, AI cloud and compute, model applications, and other businesses. Affiliate Ant Group recorded a 1 per cent rise in quarterly profit as it tests AI shopping assistants and digital health tools.

Management is targeting overall profitability for the group’s quick-commerce unit by fiscal 2029, while tracking a three-year payback window on its current infrastructure outlays.