ALIBABA PROFIT FALLS 75% AS AI SPENDING SURGES IN JUNE QUARTER

Alibaba reported a 75% year-on-year drop in net income for the June quarter as capital expenditure on artificial intelligence infrastructure accelerated sharply. The Chinese technology company posted revenue growth of 9% to 268.95 billion Chinese yuan, marginally above analyst estimates. Capital expenditure rose 75% to 67.7 billion yuan (approximately $10 billion), driven by uneven timing of customer purchases, increased CPU-compute capacity and higher chip component prices. Alibaba's shares listed in the United States fell 4.6% shortly after markets opened following the announcement.

The company's cloud division, which operates its AI-related products, generated revenue of 48.4 billion yuan, representing 45% year-on-year growth. Chief Executive Eddie Wu stated that AI-related product revenue achieved "triple-digit growth for the twelfth consecutive quarter" and positioned the company to capture demand for artificial intelligence and computing capacity. In March, Alibaba had raised prices for AI computing and storage products by as much as 34% amid surging customer demand. Analysts noted that the sharp increase in capital expenditure and negative free cash flow of 44.7 billion yuan could raise questions about capital requirements and investment returns.

The investment surge reflects competitive pressures across the technology sector as companies globally increase spending on computing power and hardware to develop artificial intelligence capabilities. Eddie Wu characterised Alibaba's "full-stack AI strategy" as placing the company in a superior position relative to rivals. Citi analysts said Alibaba's disclosures on its AI Labs and Applications segment provided clearer visibility to investors on capital allocation and product progress in the artificial intelligence market.