Alibaba Group NYSE: BABA reported June-quarter revenue growth of 9% as accelerating demand for artificial intelligence products and cloud services helped offset the effects of heavier technology investment on profitability.
Chief Executive Officer Eddie Wu said Alibaba Cloud’s external revenue rose 45% year over year, marking its fastest growth rate in 22 quarters. AI-related product revenue maintained triple-digit growth for the 12th consecutive quarter and reached an annualized run rate above RMB49.5 billion, or about $7.3 billion.
“AI has become Alibaba’s most certain growth engine,” Wu said, adding that the company expects AI and cloud revenue growth to accelerate further as it expands computing capacity to meet customer demand.
Cloud growth and AI commercialization
Alibaba said AI-related products accounted for 35% of external cloud revenue during the quarter. The company’s AI offerings span computing infrastructure, Model-as-a-Service, or MaaS, and AI applications. Wu said demand for AI agents is driving usage of tokens and graphics-processing-unit compute, while also increasing demand for traditional cloud services including CPU compute, storage, databases and networking.
The annual recurring revenue of Alibaba’s model and application services, including MaaS, surpassed RMB16 billion as of August, according to management. Wu said Alibaba expects annualized AI-related revenue to approach $10 billion in the following quarter.
Alibaba Cloud’s adjusted EBITDA margin reached 12% in the quarter, up sequentially, supported by scale efficiencies and stronger pricing for AI-related products in a supply-constrained market. The company said it expects margins to continue expanding steadily in the coming quarters.
Wu said Alibaba has reduced the delivery time for hyperscale AI data centers to 100 days and expects computing demand to continue exceeding available supply. The company also highlighted its proprietary T-Head chip business, saying more than 650 customers had been served through Alibaba Cloud as of early August.
Alibaba’s latest Zhenwu M890 AI processor has been deployed in commercially available SuperNode instances. Wu said the chips can support inference workloads for foundation models with more than 2 trillion parameters and are being used by Alibaba’s Qwen models to provide MaaS services to outside customers.
Investment weighs on earnings and cash flow
Total revenue rose to RMB269 billion, while adjusted EBITDA declined 30% to RMB27.3 billion. Chief Financial Officer Toby Xu attributed the decline primarily to technology investment, partly offset by improved cloud operating results and efficiency gains in other businesses.
GAAP net income fell 75% to RMB10.4 billion, which Xu said reflected lower operating income as well as lower gains from investment disposals and mark-to-market changes in equity investments.
Operating cash flow increased 11% to RMB22.9 billion. However, free cash flow was an outflow of RMB44.7 billion, compared with an RMB18.8 billion outflow a year earlier, mainly because of cloud-infrastructure investment.
Capital expenditures totaled RMB67.7 billion during the quarter. Wu said the company had spent RMB190 billion of its previously announced RMB380 billion three-year capital-investment plan through the end of the June quarter. He said the quarter’s elevated spending reflected equipment-delivery timing, increased CPU procurement for AI-agent demand and higher prices for semiconductor components.
Management said AI infrastructure is an asset-heavy business because computing capacity must be built before it can be monetized through subscriptions, API calls, training and inference services. Wu said servers equipped with chips typically break even within three years, though Alibaba aims to shorten that period through higher-margin products, increased use of proprietary chips and partnerships such as co-built data centers and customer prepayments.
Alibaba held approximately $30.7 billion in net cash as of June 30, or about $46.5 billion excluding debt maturing beyond five years, according to Xu.
E-commerce revenue rises as quick commerce expands
Alibaba reorganized its reporting structure into four segments: Alibaba E-commerce Group, AI Cloud and Compute Services, AI Labs and Applications, and All Others.
Alibaba E-commerce Group revenue rose 4% to RMB205.9 billion. Customer management revenue declined 7%, though Xu said it would have increased 1% excluding the impact of a new business-development program. The segment’s adjusted EBITDA remained relatively stable at RMB39.7 billion.
China Quick Commerce revenue increased 45% to RMB53.3 billion, driven by Freshippo and Taobao Instant Commerce. Alibaba said Taobao Instant Commerce improved unit economics while maintaining market share, aided by higher average order values and better fulfillment efficiency.
Jiang Fan, chief executive officer of Alibaba E-commerce Business Group, said the company plans to further integrate Freshippo and Tmall Supermarket and expand front warehouses to develop non-food quick-commerce categories. He said Alibaba expects non-food transaction volume in quick commerce to exceed food-category volume during the next fiscal year.
Jiang said the quick-commerce business is expected to achieve overall profitability in fiscal 2029 and could eventually contribute 30% of the platform’s total gross merchandise value. He also said AliExpress achieved an operating profit during the quarter, despite pressure on international e-commerce growth from tariff policies and geopolitical conditions.
AI applications and long-term strategy
Alibaba’s AI Labs and Applications segment posted an adjusted EBITDA loss of RMB13.9 billion, primarily due to increased AI-capability investments and higher inference costs tied to the Qwen app. Xu said the loss narrowed significantly from the prior quarter because marketing expenses for the app declined.
The company said 250 million users have had an AI-driven shopping experience through Qwen app agentic features since the app’s launch. Alibaba also said the Qwen model series has been downloaded more than 3 billion times globally, with more than 300,000 derivative models built on it.
Wu said Alibaba remains confident in reaching its goal of RMB100 billion in external cloud revenue by 2030 and sees a path toward a 20% gross margin. While he said chips and cloud infrastructure are likely to capture much of the near-term AI value, he characterized API-based model monetization as a transitional approach and said the longer-term opportunity could involve AI delivering products, research and operational outcomes for customers.
About Alibaba Group (NYSE:BABA)
Alibaba Group Holding Limited is a Chinese multinational conglomerate founded in 1999 in Hangzhou, China, by Jack Ma and a group of co‑founders. The company built its business around internet-based commerce and related services and has grown into one of the largest e-commerce and technology companies in the world. Alibaba completed a high‑profile initial public offering on the New York Stock Exchange in 2014.
The company operates a portfolio of online marketplaces and platforms serving different customer segments: Alibaba.com for global and domestic B2B trade, Taobao for consumer-to-consumer shopping, and Tmall for brand and retailer storefronts targeted at Chinese consumers.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
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