Alibaba just showed us how expensive the AI race really is.
The Chinese tech giant reported a 75% year-on-year drop in net profit for the April-to-June quarter.
Profit fell from around 43.1 billion yuan to 10.5 billion yuan.
And yet…
Alibaba’s revenue actually increased by 9%, reaching almost 269 billion yuan.
So what’s happening?
Alibaba is spending like crazy on AI.
Its capital expenditure jumped 75% to around 67.7 billion yuan, roughly 10 billion dollars, with a major part going toward AI infrastructure and computing capacity.
And that’s the crazy part.
Alibaba isn’t losing money because nobody wants its products.
It’s spending enormous amounts of money trying to build the infrastructure for the next generation of AI.
More chips.
More data-center capacity.
More computing power.
More AI models.
More cloud infrastructure.
Basically…
Alibaba is paying the bill before it knows exactly how big the AI business will become.
And this is where the story gets interesting.
Because its AI business is actually showing strong growth.
Alibaba Cloud’s AI and computing revenue jumped 45% year-on-year, reaching around 48.4 billion yuan for the quarter. AI-related product revenue has also recorded triple-digit growth for twelve consecutive quarters, according to the company.
So you’ve got this bizarre situation:
AI is growing incredibly quickly…
while the cost of building that AI infrastructure is destroying short-term profitability.
It’s basically the ultimate tech-business dilemma:
Do you protect today’s profits, or spend billions trying to dominate tomorrow?
Alibaba has clearly chosen option two.
The company has committed to investing at least 380 billion yuan, roughly 56 billion dollars, over three years in cloud computing and AI infrastructure.
And now the company is doubling down even further.
Today, Alibaba announced plans to raise around $10.2 billion through a new share sale, with the money earmarked for AI development and infrastructure.
In other words…
Alibaba is asking investors for even more money to keep funding the AI race.
And investors aren’t exactly celebrating.
Alibaba’s shares dropped sharply after the announcement, showing that some shareholders are starting to question whether the enormous AI spending will actually generate enough returns.
So…
Is Alibaba making a terrible mistake?
Not necessarily.
Think about Amazon.
For years, Amazon sacrificed short-term profits to build warehouses, logistics infrastructure and cloud computing.
At the time, investors had to trust that all that spending would eventually create something much bigger.
And then AWS became one of the company’s most important businesses.
Alibaba is basically making a similar bet with AI.
Spend aggressively now…
Build the infrastructure…
Get customers…
Improve the technology…
And hopefully dominate the market later.
The difference?
AI is moving insanely fast.
If Alibaba invests billions today and the technology changes dramatically tomorrow, some of that infrastructure could become less valuable than expected.
That’s the risk.
But there’s also an opportunity.
Alibaba isn’t just trying to build an AI chatbot.
It’s trying to control a much larger ecosystem:
chips, computing, cloud services, AI models and enterprise applications.
And if businesses start depending heavily on Alibaba’s AI infrastructure…
That investment could eventually become extremely valuable.
So the real story isn’t:
« Alibaba lost 75% of its profit. »
It’s:
« Alibaba is deliberately accepting a massive short-term financial hit because it believes AI will be worth far more in the future. »
And that’s a gamble almost every major technology company is now making.
Microsoft.
Amazon.
Google.
Meta.
Alibaba.
They’re all spending enormous amounts on chips and data centers.
Because nobody wants to be the company that looks back in five years and says:
« We should have invested more. »
But there’s a limit.
At some point, investors will want to see results.
Because you can spend billions building the future…
but eventually, the future has to pay the bill.
And that’s the question Alibaba now has to answer:
Will AI become big enough to justify sacrificing 75% of today’s profit?
If the answer is yes…
This could eventually look like one of the smartest investments Alibaba ever made.
If the answer is no…
75% was just the beginning of the pain.
