Alibaba's profit falls 76% as AI capital spending jumps 75%

Alibaba Group’s net income fell 76% to 10.54 billion yuan ($1.55 billion) in the quarter ended June 30, 2026, the company reported, as a surge in AI infrastructure spending swamped otherwise accelerating growth.

The split screen defines Alibaba’s moment: its cloud and AI business is growing fast, but the cost of building for it is gutting near-term profit. Capital expenditure jumped 75% year over year to 67.68 billion yuan ($9.98 billion), swinging free cash flow to an outflow of 44.67 billion yuan ($6.58 billion). Revenue still rose 9% to 268.95 billion yuan ($39.64 billion), and on a non-GAAP basis net income fell 38% to 20.72 billion yuan.

The demand side is where management is pointing. Alibaba Cloud’s external revenue growth accelerated to 45%, its fastest pace in 22 quarters, and AI-related product revenue reached 12.38 billion yuan ($1.82 billion) — a 12th consecutive quarter of triple-digit year-over-year growth.

Chief executive Eddie Wu attributed the quarter’s strength to the improving commercialization of the company’s full-stack AI capabilities.

The investment is not yet paying its own way. The AI Labs and Applications segment posted an adjusted EBITA loss of 13.86 billion yuan ($2.04 billion), widening sharply from 3.22 billion yuan a year earlier. That gap is the number to watch: Alibaba is spending like a company convinced AI demand is durable, and its coming quarters will show whether cloud growth can outrun the capex bill it is now running up.