Alibaba Group Holding signaled on Tuesday that it is prepared to aggressively ramp up capital expenditures beyond its already massive projections, betting the company’s future on an artificial intelligence boom that CEO Eddie Wu describes as “highly definitive.”
The Chinese tech titan reported accelerated sales at its pivotal cloud division, sparking a premarket rally of nearly 4.3% in New York as investors looked past a steep plunge in short-term profitability to focus on the resurgence of growth, according to CNBC.
The report offered the strongest evidence yet that Alibaba’s restructuring efforts are gaining traction. Revenue for the fiscal second quarter rose 5% to 247.8 billion Chinese yuan ($34.8 billion), beating analyst estimates. However, the spotlight was firmly on the Cloud Intelligence Group, the division responsible for training and hosting AI models. Cloud revenue surged 34% year-on-year to 39.8 billion yuan, a significant acceleration from the 26% growth recorded in the previous quarter.
According to Wu, the company is currently demand-constrained rather than supply-constrained. “We are not even able to keep pace with the growth in customer demand… in terms of the pace at which we can deploy new servers,” Wu admitted during the earnings call.
He revealed that AI-related product revenue has achieved triple-digit year-over-year growth for the ninth consecutive quarter.
To meet this voracious appetite, Alibaba is pouring capital into infrastructure. The company has spent approximately 120 billion yuan on AI and cloud infrastructure over the past four quarters alone. While the company announced a three-year, 380 billion yuan ($53 billion) investment plan in February, Wu suggested on Tuesday that this figure “might be on the small side” and that leadership “wouldn’t rule out further scaling up that capex investment” if the current trajectory continues.
Defying the “Bubble” Narrative
Wu utilized the earnings call to forcefully push back against global skepticism regarding an “AI bubble.” Addressing the debate over the depreciation of graphics processing units (GPUs) and the return on investment for generative AI, Wu painted a picture of a market suffering from acute undersupply.
“I think in the next three years to come, AI resources will continue to be undersupplied with demand outstripping supply,” Wu stated.
He noted that the scarcity of computing power is so severe that GPUs—specifically those designed by Nvidia—that are three to five years old are still “running at full capacity” alongside the newest hardware. This tightness in the supply chain extends beyond logic chips to memory and data center construction, reinforcing his view that the industry is nowhere near hitting a wall in terms of capabilities or adoption.
Alibaba’s own generative AI offering, the Qwen model, is capitalizing on this wave. On Monday, the company announced that its Qwen app—a direct rival to OpenAI’s ChatGPT—surpassed 10 million downloads within just one week of its public launch, solidifying Alibaba’s status as a leading contender in China’s domestic AI race.
The “Quick Commerce” Gamble
While the cloud division provided the optimism, Alibaba’s aggressive expansion into “instant commerce” weighed heavily on the bottom line. Overall adjusted EBITA—a closely watched measure of core profitability—plummeted 78% year-on-year to 9.1 billion yuan. The company attributed this drop largely to heavy investments in its logistics and delivery networks to compete in the cut-throat market for super-fast delivery.
Despite the margin compression, the strategy appears to be driving top-line results. Revenue from the quick commerce segment surged 60%, far outpacing the 12% growth seen in the prior quarter. This helped lift the broader China e-commerce division, which houses the flagship Taobao and Tmall platforms, to a 16% revenue increase.
“In our consumption business, quick commerce continued to scale with significant improvement in unit economics and drove rapid growth in monthly active consumers on the Taobao app,” Wu said.
Jiang Fan, who heads Alibaba’s international digital commerce group, described quick commerce as a “strategic pillar” for the future. He outlined an ambitious target to reach 1 trillion yuan in gross merchandise value (GMV) for the segment within three years. Investors appeared willing to forgive the immediate profit hit, interpreting the spending as a necessary maneuver to defend market share against domestic rivals while the high-margin cloud business powers the company’s long-term transformation.
