Alibaba AI Cloud Revenue Up 45%, But Profits Plunge 75% on Heavy Capex

What happened: Alibaba reported Q1 FY26 revenue of 268.95 billion yuan (~$39.64 billion), up 9% year-over-year, with external cloud revenue jumping 45% and AI product revenue reaching 12.38 billion yuan (~$1.82 billion). Despite the top-line growth, net income fell 75–76% to 10.44–10.54 billion yuan (~$1.55–1.6 billion), marking the fifth consecutive profit miss. Capital expenditures surged 75% to 67.7 billion yuan (~$10 billion), resulting in negative free cash flow of ~$6.6 billion.

Why it matters: While Alibaba's aggressive investment in AI and cloud is fueling rapid growth, it comes at the cost of profitability and cash flow. CEO Eddie Wu maintains that Alibaba is in a "superior position" for the AI boom, but the market remains skeptical, with shares falling as much as 5% post-earnings. The results underscore the tension between scaling next-gen tech and delivering financial returns.

Source: Decrypt, Yahoo Finance, TipRanks