Alibaba Profit Falls 75% Amid Increased AI Spending

Alibaba Group Holding Ltd. reported a 75% drop in profit for the June quarter. This decline is mainly due to higher spending on artificial intelligence (AI) initiatives. The company's net income fell to 10.5 billion yuan ($1.6 billion). However, revenue increased by 9% to 269 billion yuan, meeting analyst expectations. This revenue growth was driven by a 45% surge in its cloud and AI division, which generated 48.4 billion yuan in revenue. This marks the fastest growth in 22 quarters.

Increased Capital Expenditure

Capital expenditure rose 75% year-on-year to 67.7 billion yuan. This reflects Alibaba's strong investment in AI infrastructure. The company reported a free cash outflow of 44.7 billion yuan, more than double the outflow from the same period last year. Despite the profit decline, adjusted earnings before interest, taxes, and amortization (EBITDA) reached 27.3 billion yuan. This was slightly above analyst forecasts of 26.6 billion yuan.

Alibaba has positioned itself as a key player in the global AI market. Its flagship Qwen AI models have become very popular. CEO Eddie Wu has stated that the company will focus on AI growth over short-term profit. Alibaba plans to invest beyond the previously announced budget of 380 billion yuan over three years. This strategy aims to quintuple cloud and AI revenue to $100 billion over five years. The company has also streamlined its operations by merging AI research teams under Alibaba Token Hub. It has divested non-core assets, including its gaming unit.

Related coverage: Baidu Q2 Revenue Drops 4% as AI Growth Fails to Offset Slump.

Based on reporting by: livemint.com, scmp.com