AI: Alibaba Accelerates as Cloud Revenue Jumps 45%

Alibaba regains a pace it hadn’t known for about three years. The Chinese group reports 268.95 billion yuan in revenue for its first fiscal quarter, nearly 40 billion dollars and a 9% increase year-on-year. Cloud accelerates by 45%. AI-related products notably record a twelfth consecutive quarter of triple-digit growth.

AI drives Alibaba to its best pace in three years

Alibaba had already centered Qwen in its strategy. The group had recently adapted certain functions of its AI to new rules imposed by Beijing. Results are now starting to follow. Alibaba generated 268.95 billion yuan in revenue in the quarter ended late June. Analysts expected around 268.88 billion.

The gap remains small. The pace, much less so. Growth reaches 9% year-on-year, the group’s highest quarterly level in about three years. Alibaba Cloud provides much of the acceleration. The division’s external revenue grows by 45%.

Products directly linked to AI generated 12.38 billion yuan, about 1.82 billion dollars. They show a triple-digit annual growth for the twelfth consecutive quarter.

Eddie Wu, Alibaba’s CEO, attributes this progress to better marketing of the group’s AI services. Cloud no longer only serves to finance Qwen’s ambitions. Qwen also begins to feed the cloud.

Alibaba spends 10 billion dollars in the quarter

This growth is costly. Alibaba dedicated 67.7 billion yuan to capital expenditures over the quarter. This amounts to about 10 billion dollars and a 75% increase year-on-year. Much of the money goes to chips and computing power for AI. Demand still exceeds available infrastructure.

Alibaba therefore must build faster. The group had already shown how much it wanted to protect its home ecosystem. In July, Alibaba banned Claude Code for its employees amid tensions with Anthropic and accusations around model distillation.

AI Qwen now occupies an even more important place. Alibaba also releases its models more widely. Qwen 3.8-Max was recently offered open weights. The company had previously stopped the free plan of its agent Qwen Code.

The model is gradually changing. Broadly granting access to AI Qwen increases its usage. Some companies then using these models need servers, computing, and cloud tools. Alibaba sells all of this. The bill comes immediately, however. Free cash flow turns negative with an outflow of more than 6.6 billion dollars. Investors did not ignore the figure.

Profit plunges despite the cloud boom

Alibaba reports 10.44 billion yuan in net profit, about 1.6 billion dollars.

The decrease is 75% year-on-year. It is the fifth consecutive quarter with earnings below expectations. The US-listed stock lost up to about 5% after the release before recovering some losses.

Growth is therefore returning.

Margins will wait. Alibaba bets heavily on volume. AI Qwen takes a bigger place in the Chinese ecosystem and the group also expands its deals beyond its own platforms.

Apple notably plans to use Alibaba’s technology to bring some Apple Intelligence functions to iPhones sold in China. Chinese models are also progressing outside the country. Their share of tokens generated on OpenRouter would have risen from less than 2% at the end of 2024 to about 61% by mid-2026.

Alibaba largely participates in this push. China is already investing massively in this battle, while Chinese tech groups seek to close the gap with American AI players. For Alibaba, the accounts now deliver two figures difficult to separate. 45% growth for cloud. 75% decline for profit. AI earns increasingly more. It still costs enormously.