Alibaba Group Holding reported capital expenditure of RMB 67.7 billion ($10 billion) in the June quarter, up 75% year-over-year and 151.6% from RMB 26.9 billion in the March quarter, driven primarily by AI infrastructure investment2,4. The sequential jump reversed four quarters of moderating expenditure.
The spending surge accompanied strong top-line growth in Alibaba's cloud and AI division. Revenue from AI Cloud and Compute Services — a new reporting segment covering Alibaba's cloud business and its T-Head chip arm — rose 44.9% year-over-year to RMB 48.4 billion ($7.2 billion), the segment's fastest growth pace in 22 quarters5. Revenue from AI-related products reached RMB 12.4 billion ($1.8 billion), extending a streak of triple-digit growth to 12 consecutive quarters, according to CEO Eddie Wu.
Overall revenue for the quarter ended June 30 came in at RMB 268.95 billion (approximately $40 billion), up roughly 9% year-over-year and slightly above the LSEG consensus estimate of RMB 268.88 billion1. That marked an acceleration from 2.9% growth in the March quarter.
The cost of the AI buildout was visible across the income statement. Net income fell 75.4% year-over-year to RMB 10.4 billion (approximately $1.6 billion). Adjusted EBITA declined 29.6% to RMB 27.3 billion, though that figure beat expectations. Alibaba said lower gains from investment disposals, lower mark-to-market gains on equity investments, and lower income from operations also contributed to the net income decline. Free cash flow was negative RMB 44.7 billion, compared with an outflow of RMB 18.8 billion a year earlier, a deterioration Alibaba attributed mainly to increased cloud infrastructure expenditure.
Adjusted EBITA losses at Alibaba's AI labs and applications business — the unit housing its Qwen model family — widened to RMB 13.9 billion from RMB 3.2 billion a year earlier, which Alibaba attributed primarily to greater AI investment and inference costs associated with Qwen. Alongside the earnings, Alibaba unveiled what it described as its "most powerful" AI model, Qwen3.8-Max, sharing results showing it delivered comparable or sometimes better scores than Anthropic's Fable 5. The company also released Qwen3.8-27B, an AI model designed to run on consumer hardware such as laptops, which Alibaba said has capabilities in coding, professional work, research, and long-horizon agentic tasks.
Alibaba's domestic e-commerce business moved in the opposite direction. China e-commerce revenue fell 8.3% to RMB 110.9 billion, and customer management revenue declined 7.5%, reflecting what Bloomberg described as a broad Chinese consumption slowdown.
Alibaba's American depositary shares opened 4.2% lower on August 20 and fell as much as 5.4% before closing 1.3% higher at $130.53. Shares in Hong Kong opened 2.4% higher on August 21 at HKD 129.2 and climbed as much as 2.9% before reversing course, subsequently falling as much as 1.7% below the previous close during afternoon trading.
Alibaba's capex trajectory mirrors that of Chinese peers. Tencent recorded RMB 52.8 billion in capital expenditure during the June quarter, up approximately 176.4% year-over-year, and also posted negative free cash flow of RMB 13.8 billion, driven in part by prepayments for AI-related computing capacity. Baidu reported 50% year-over-year growth in its narrower AI cloud infrastructure business to RMB 7.3 billion.
ANALYSIS The quarter crystallizes the trade-off facing China's largest cloud provider: AI-driven revenue acceleration is real and accelerating, but the capital intensity required to sustain it is compressing margins and consuming cash at a pace that dwarfs the incremental revenue gains. The widening losses at the Qwen-focused AI labs unit underscore that model development costs are layered on top of infrastructure capex, creating a dual drag on profitability even as the top line expands.