Alibaba’s latest earnings showed why investors may be reluctant to assign it, or its artificial intelligence peers, a higher valuation. The Chinese tech giant said cloud revenue rose 36% in the December quarter, and AI-related product revenue posted triple-digit growth for a tenth straight quarter. Even so, its US-listed shares fell about 7.1% on March 19 to close at USD 124.9.
The hesitation is understandable. Revenue rose 2% year-on-year (YoY) to RMB 284.8 billion (USD 41.3 billion), or 9% on a like-for-like basis excluding Sun Art and Intime, but that still missed the RMB 290.7 billion (USD 42.1 billion) consensus compiled by LSEG. Non-GAAP diluted earnings per ADS fell 67% YoY to RMB 7.09 (USD 1), well below the RMB 11.64 (USD 1.7) estimate.
The problem was not a lack of growth engines. It was the cost of funding them. Quick commerce revenue jumped 56% to RMB 20.8 billion (USD 3 billion), but customer management revenue in Alibaba’s domestic e-commerce business rose just 1% to RMB 102.7 billion (USD 14.9 billion). Adjusted EBITA for the unit fell 43% to RMB 34.6 billion (USD 5 billion), while its operating margin narrowed to 4% from 15%. Sales and marketing expenses climbed to 25.3% of revenue from 15.2% a year earlier as Alibaba spent more on user incentives and promotions.
That spending also weakened cash generation. Operating cash flow dropped 49% to RMB 36 billion (USD 5.2 billion), while free cash flow fell 71% to RMB 11.3 billion (USD 1.6 billion). Alibaba said the decline was mainly due to investment in quick commerce. That is the clearest sign that it is still paying heavily to defend consumer traffic and shorten delivery times, even as softer transaction activity has limited the near-term return.
Cloud remains the clearest offset. Alibaba’s cloud intelligence unit posted revenue of RMB 43.3 billion (USD 6.3 billion), while adjusted EBITA in the segment rose 25% to RMB 3.9 billion (USD 565.2 million). Revenue excluding Alibaba-consolidated subsidiaries grew 35%, and the company said AI-related product revenue extended its triple-digit growth streak to ten quarters. That suggests Alibaba’s infrastructure and model stack are gaining traction, even if the group’s overall earnings mix has yet to reflect it.
The divergence also helps explain why Alibaba used the quarter to sharpen its AI message. Management has set a five-year goal of more than USD 100 billion in combined external cloud and AI revenue, while the newly formed Token Hub is meant to bring models, model-as-a-service, and applications closer together. Alibaba also said Qwen’s consumer-facing monthly active users have surpassed 300 million. The broader idea is clear: it wants its cloud, chips, and applications to reinforce one another.
What Alibaba still failed to show is that AI monetization can absorb the cost of commerce any time soon. It is building momentum in cloud and AI, but investors are still being asked to fund that push through weaker marketplace profit, thinner margins, and lower cash flow. Until those tradeoffs start to ease, the stock’s upside is likely to remain constrained by the cost of defending its consumer base.
Note: RMB figures are converted to USD at rates of RMB 6.90 = USD 1 based on estimates as of March 20, 2026, unless otherwise stated. USD conversions are presented for ease of reference and may not fully match prevailing exchange rates.