Alibaba Group Holding Ltd. reported a 75% year-on-year drop in net income to 10.5 billion yuan ($1.6 billion) for the quarter ending June 30, driven by record spending on AI and cloud infrastructure. The company’s U.S.-listed shares fell 4% in premarket trading following the announcement.
Ant Group, Alibaba’s financial affiliate, reported a 1% rise in quarterly profits to approximately 4.7 billion yuan ($698 million) for the same period. Ant Group’s earnings report, which preceded Alibaba’s, highlighted its pivot toward agentic commerce, digital health, and AI services, including its popular AQ AI personal health app.
Alibaba’s cloud division revenue grew 45% year-on-year to 48.4 billion yuan, reflecting strong demand for its computing capacity. However, the company’s capital expenditure surged 75% to 67.7 billion yuan, primarily due to increased chip and data center investments for AI projects. Alibaba attributed the higher spending to uneven customer demand timing, expanded CPU-compute capacity, and rising chip component prices.
Alibaba’s AI Push: Growth Strategy vs. Financial Trade-offs
Alibaba’s Chief Executive Officer Eddie Wu has prioritized AI and cloud expansion over short-term profitability, aiming to quintuple cloud and AI revenue to $100 billion over five years. The company has merged most AI research and product teams under Alibaba Token Hub, a new unit directly led by Wu. In recent months, Alibaba has divested non-core assets, including the sale of its gaming unit Lingxi Games.
Wu has stated that the company will continue investing heavily in AI, even beyond its previously disclosed 380 billion yuan budget over three years. This strategy aligns with Alibaba’s push to compete globally in AI, particularly after its Qwen model family became the world’s most popular open-source AI model.
Ant Group’s Steady Growth Amid Diversification
Ant Group, Alibaba’s financial affiliate, reported modest profit growth of 1% despite its own record $5.17 billion AI research and development spending in 2025. The company has been expanding into digital health and embodied AI, with its AQ AI health app gaining significant user traction.
Ant Group declined to comment on its earnings, focusing instead on its long-term AI and health tech investments. The affiliate’s financial performance contrasts with Alibaba’s broader struggles, as Ant Group benefits from diversified revenue streams beyond e-commerce.
Market and Industry Reactions
The financial results triggered a 4% drop in Alibaba’s U.S.-listed shares in premarket trading, reflecting investor concerns over rising costs and margin pressures. Analysts noted that while Alibaba’s cloud division remains a growth engine, the AI investment burden is weighing on profitability.
The company’s free cash outflow exceeded $6.6 billion, further highlighting the financial strain of its AI expansion. Despite these challenges, Alibaba’s cloud revenue growth of 45% underscores the strategic importance of AI infrastructure in its long-term business model.