Alibaba profit falls 75% as AI capex surges to $10 billion

Alibaba Group reported 1QFY27 revenue of RMB 269 billion, up 8.6% year on year, while net income plunged 75% to RMB 10.5 billion as capital spending on AI infrastructure surged to RMB 67.7 billion.

"As we continue to ramp up our supply, our AI and Cloud revenue growth will accelerate further in the coming quarters, alongside continued improvement in profitability," Chief Executive Officer Eddie Wu said in prepared remarks.

External cloud revenue grew 45% to RMB 48.4 billion, with AI products contributing 35% of that total. Cloud operating margin expanded 4.4 percentage points to 11.6%. Capital expenditures jumped 75% to RMB 67.7 billion, pushing free cash flow to negative RMB 44.7 billion. Adjusted EBITA fell 29.6% to RMB 27.3 billion, beating CICC's expectations on improved cloud profitability.

The results mark Alibaba's most aggressive AI investment phase, with the company targeting $100 billion in annual AI and cloud revenue within five years. CICC raised its FY27 and FY28 revenue forecasts by 1% and 3% to RMB 1,150.1 billion and RMB 1,334.8 billion respectively, maintaining an Outperform rating with a HK$172 target and US$178 ADR target, implying 36% and 38% upside.

CICC noted that MaaS annual recurring revenue doubled to RMB 16 billion by August from May, and expects external cloud revenue growth to accelerate to 51% in the September quarter. The brokerage projects cloud EBITA margin to reach 12% in the current quarter, driven by scale effects, AI pricing power and T-Head chip contributions.

The e-commerce business showed resilience, with customer management revenue up 1% year on year on the old basis, in line with broader industry trends. CICC expects CMR to improve marginally in 2QFY27. Flash-sale losses are projected to narrow 60% year on year as order values and fulfillment efficiency improve.

Alibaba's US-listed shares fell more than 3% after the results, though the stock has rallied more than 40% from June lows. The company has committed at least RMB 380 billion over three years to cloud computing and AI infrastructure, and previewed its Qwen3.8-Max model in July, which it said ranks second only to Anthropic's Claude Fable 5.

The negative free cash flow reflects a strategic choice to front-load AI infrastructure investment, CICC said, noting that servers pay back within three years while depreciation runs five years, with at least two years of positive cash flow after breakeven. The brokerage expects return on invested capital to reach mid-to-high double digits.

The earnings signal that Alibaba is prioritizing long-term AI infrastructure advantage over near-term profitability. Investors will watch the September quarter for evidence of accelerating cloud revenue growth and margin expansion.

This article is for informational purposes only and does not constitute investment advice.