Cloud sales accelerate as Alibaba expands AI investments
Alibaba said it may increase spending on artificial intelligence beyond its current projections as demand remains strong, a signal that followed accelerated growth in the company’s cloud division. The announcement pushed Alibaba’s New York-listed shares up about 4.3% in premarket trading, even as the market looked past a sharp decline in profitability across the group.
Second-quarter results and cloud momentum
For the quarter ended Sept. 30, Alibaba reported revenue of 247.8 billion Chinese yuan ($34.8 billion), up 5% year over year and above LSEG estimates of 242.65 billion yuan. Investors focused heavily on the cloud computing division, where AI-related revenue is recorded. Cloud revenue rose 34% year over year to 39.8 billion yuan, beating expectations of 37.9 billion yuan and accelerating from 26% growth in the June quarter.
CEO Eddie Wu said strong AI demand continued to push cloud results higher, with AI-related product revenue showing triple-digit year-over-year growth for the ninth consecutive quarter. Wu said customer demand is “accelerating” and that Alibaba has struggled to match the pace at which new servers are required.
AI spending outlook and long-term demand expectations
In February, Alibaba announced plans to invest 380 billion yuan ($53 billion) over three years in AI models and infrastructure. The company said it has already spent around 120 billion yuan on AI and cloud-related capital expenditure over the past four quarters. Wu said the initial 380 billion yuan figure “might be on the small side” and that the company “wouldn’t rule out” increasing the investment if demand remains strong.
Wu said Alibaba sees no slowdown in AI model advancement and expects a “highly definitive trend” of strong AI demand over the next three years. He said supply-chain constraints across data centers and semiconductors, including memory chips and general manufacturing capacity, are likely to persist. GPUs, including older units three to five years old, are “running at full capacity.” He also said the company does not see much evidence of an AI bubble forming in the near term.
AI products and user adoption
Alibaba said its Qwen app, which competes with OpenAI’s ChatGPT and is powered by the company’s Qwen models, surpassed 10 million downloads within its first week of public launch. Earnings before interest, taxes, and amortization for the cloud division rose 35% year-on-year to 3.6 billion yuan.
Profit pressure from quick commerce investments
Alibaba has been investing heavily in instant commerce, a segment promising rapid delivery of select items and competing with other Chinese e-commerce platforms. These investments weighed on group profitability. Overall adjusted EBITA dropped 78% year over year to 9.1 billion yuan, with the company attributing part of the decline to its quick commerce spending.
China e-commerce and quick commerce performance
Despite the decline in profitability, investors appeared focused on growth trends in cloud computing and in Alibaba’s core China e-commerce division. Revenue from China commerce rose 16% year over year to 132.6 billion yuan, with growth outpacing the previous quarter. Quick commerce revenue increased 60% year over year compared with 12% in the prior quarter.
Wu said improvements in unit economics helped quick commerce scale and contributed to rapid growth in monthly active users on the Taobao app. Jiang Fan, who leads Alibaba’s e-commerce business group, called quick commerce a “strategic pillar” and said the company aims for 1 trillion yuan in gross merchandise value within three years.
Featured image credits: Flickr
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