China’s tech giant doubles down on AI and cloud computing despite mounting pressure on margins and investor patience.
MARKET INSIDER – The global artificial intelligence race is no longer just a Silicon Valley story. Alibaba has delivered one of the clearest signals yet that China’s biggest tech firms are willing to sacrifice near-term profits to secure long-term dominance in AI infrastructure, cloud computing, and semiconductor independence.
The Hangzhou-based company shocked investors after reporting an 84% collapse in adjusted EBITA for the March quarter, even as executives insisted the payoff from its massive AI investments will become “extremely clear” within three to five years. The results highlight a defining shift across the global tech industry: profitability is increasingly being traded for strategic positioning in the battle over artificial intelligence.
Alibaba’s adjusted EBITA fell to 5.1 billion yuan ($750.9 million), reflecting the enormous cost of expanding AI chips, data centers, cloud infrastructure, and its rapidly growing Qwen family of large language models. The company’s U.S.-listed shares initially rose in premarket trading before reversing sharply lower, underscoring growing investor anxiety over how long China’s tech giants can sustain such aggressive spending without meaningful earnings growth.
Yet beneath the profit decline, Alibaba’s cloud business is beginning to resemble the company’s future growth engine. Revenue in its Cloud Intelligence Group surged 38% year-on-year to 41.6 billion yuan in the March quarter, while segment EBITA jumped 57%. Alibaba said AI-related revenue reached 9 billion yuan, with annual recurring revenue from AI model and application services expected to surpass 30 billion yuan by the end of the year.
Chief Executive Eddie Wu framed the spending spree as a once-in-a-generation opportunity. He revealed Alibaba may spend even more on compute capacity over the next five years than its already massive 380 billion yuan capital expenditure plan announced previously. The company also emphasized a competitive advantage that few Chinese rivals can currently match: self-developed AI chips deployed at scale through its cloud ecosystem.
That positioning matters far beyond China. As U.S. export restrictions continue reshaping the global semiconductor supply chain, Alibaba is attempting to build a vertically integrated AI stack capable of reducing dependence on foreign technology. In many ways, the strategy mirrors moves by Microsoft, Amazon, and Meta, all of which are pouring tens of billions of dollars into AI infrastructure while asking investors to tolerate weaker margins today for future dominance.
At the same time, Alibaba is fighting another costly war closer to home. China’s ultra-competitive “instant commerce” market — where deliveries arrive within an hour — continues to drain profitability across its core e-commerce operations. Adjusted EBITA in Alibaba’s China commerce segment dropped 40% year-on-year as the company poured capital into logistics and rapid-delivery services to defend market share. Still, quick commerce revenue jumped 57%, suggesting Alibaba sees the sector as strategically unavoidable despite its razor-thin margins.
The bigger question for global investors is whether Alibaba is evolving into China’s AI infrastructure champion — or simply entering an expensive arms race with no guaranteed winner. Either way, the company’s latest earnings suggest the era of Chinese tech firms prioritizing short-term profitability may be over. In the new AI economy, scale, compute power, and control of the supply chain increasingly matter more than quarterly earnings beats.
