Alibaba revenue disappoints as AI profit push grows urgent

Alibaba Group Holding’s revenue rose a slower-than-anticipated 2%, underscoring the urgency behind the Chinese e-commerce leader’s drive to wring more profits out of costly AI endeavors. The company posted sales of 284.8 billion RMB ($41.3 billion) for the three months ended December, versus the average projection of 289.8 billion RMB ($42 billion). Net income dived about 67% to 16.3 billion RMB ($2.3 billion). Why China’s AI investment race is straining Alibaba’s bottom line Alibaba’s results show why the company is driving a major restructuring aimed at generating profit off its sprawling AI endeavors. The company this week launched an agentic AI service known as Wukong for company clients, and hiked prices for its cloud computing and storage services by as much as 34%. Alibaba is keen to monetize its growing AI portfolio in part to offset losses in its e-commerce business, which is grappling with fierce domestic competition. The Hangzhou-based company — one of the world’s largest cloud service providers — is considered a frontrunner in China’s race toward artificial general intelligence. It’s also the most aggressive in terms of spending: Alibaba has pledged more than $53 billion of AI investment over several years, far surpassing its Chinese rivals though a fraction of the $650 billion that US hyperscalers intend to shell out in 2026. Alibaba’s cloud unit has since become the group’s fastest-growing business, with the company recording triple-digit revenue growth in AI-related products over the summer. How Tencent’s WeChat ecosystem is challenging Alibaba’s lead The company however is grappling with fundamental changes with the potential to reshape leadership of the world’s biggest internet arena. China’s newfound love affair with OpenClaw-style agentic AI has handed Tencent Holdings, with its all-encompassing WeChat ecosystem, an initial advantage. Alibaba’s rival is considered well-positioned to build agentic AI because it sits on a trove of user data and controls access to a universe of Chinese apps via WeChat. Alibaba’s AI efforts were further unsettled by the surprise departure of Junyang Lin, the top developer for Qwen models and one of the most influential figures behind Alibaba’s transition to AI. That sent ripples through the industry and raised questions about the company’s approach to cutting-edge research. The exact reasons for Lin’s exit remain unclear. Costs are rising on other fronts. Over last month’s week-long Chinese New Year holiday, Alibaba, Tencent, ByteDance and Baidu gave out billions of RMB in coupons to acquire users for its consumer-facing agentic app. While competitors saw a sharp increase in adoption, Qwen’s usage remained well above pre-campaign levels, according to estimates by Morgan Stanley. Alibaba has since shifted its focus back to enterprise-facing products, launching a major restructuring centered on selling AI services mainly to businesses. With the creation of a new business group called Alibaba Token Hub, nearly all AI-related units now come under a single umbrella led by Chief Executive Officer Eddie Wu. The new business unit’s name refers to the units of computing (such as keywords) that serve as a benchmark for AI usage as well as a framework for charging those users. It “shows the explosive AI demand from strong token usage,” Morgan Stanley’s Gary Yu said in a research note this week. “The biggest implication is that it further strengthens commercialization of AI.” Alibaba's Nvidia alternative eyes a separate stock listing Wu has detailed a plan to build full-stack AI technology, including hardware. The company’s chip unit, T-Head, made headway in acquiring major customers and Alibaba is preparing for a separate listing of the business to tap into investors’ interest in companies providing alternatives to Nvidia Corp. In the meantime, Alibaba is still deeply involved in an instant delivery price war with Meituan and JD.com — a battle that’s raged for more than a year and drawn regulatory scrutiny. The company last year offered subsidies worth as much as 50 billion RMB ($7.2 billion) to defend its turf. E-commerce chief Jiang Fan said in November Alibaba planned for “sustained long-term investment” in instant commerce, though he said losses have begun to narrow. By Luz Ding

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Alibaba revenue disappoints as AI profit push grows urgent