Alibaba Cloud Revenue Surges 45%, AI Gains Offset by 75% CapEx Jump
In brief
- Alibaba Cloud revenue accelerated 45%; AI products hit 12.38B yuan with 12 consecutive quarters of triple-digit growth.
- Capital expenditure jumped 75% to 67.7B yuan amid chip costs and AI compute demand.
- Free cash flow swung to 6.6B dollar outflow; shares fell 5% on earnings miss.
- CEO Eddie Wu credited improving AI commercialization for quarterly strength.
Cloud Accelerates, AI Breaks Through
The 9% quarterly growth rate marks the fastest pace Alibaba has posted in roughly three years. Alibaba Cloud's external revenue growth accelerated to 45%—a sharp uptick from prior quarters. More striking: AI-related product revenue reached 12.38 billion yuan ($1.82 billion), marking the 12th consecutive quarter of triple-digit year-over-year expansion. This isn't a one-off spike. It's sustained momentum in a category that barely existed two years ago.
CEO Eddie Wu credited the strength to improving commercialization of Alibaba's full-stack AI push. The company's moves underscore a shift in strategy. Earlier this month, Alibaba gave away Qwen 3.8-Max, its most capable model, as open weights for the first time at that scale. That's a bet on volume and ecosystem lock-in. It also shut down the free tier of its Qwen Code coding agent in April, signaling a tighter monetization posture for production workloads.
The open-weight gambit appears to be working. Chinese open-weight models jumped from under 2% of tokens generated on OpenRouter in late 2024 to roughly 61% by mid-2026. And Apple is pairing its in-house model with Alibaba's Qwen to bring Apple Intelligence to Chinese iPhones—a validation of the Qwen platform's reach.
Capex Surge Crushes Cash Flow
The profit story, though, tells a different tale. Capital expenditure jumped 75% to 67.7 billion yuan ($10 billion), which Alibaba tied mainly to climbing chip prices and expanding compute capacity as AI demand outpaces supply. That's the cost of staying in the race.
The result: free cash flow swung to an outflow of more than $6.6 billion for the quarter. This marks the fifth straight quarter of net income declines, a pattern that tests investor patience even as the AI narrative accelerates. Revenue beat expectations—the 268.95 billion yuan was slightly ahead of the 268.88 billion yuan analysts expected—but the margin compression and cash burn overshadowed the win. Alibaba's U.S.-listed shares fell around 5% shortly after the opening bell, reflecting the market's skepticism that near-term profitability will return.
