Alibaba is spending heavily to secure its place in China’s artificial intelligence race, and the June quarter offered a clearer view of both sides of that bet. Its cloud business accelerated, overall revenue growth picked up, and AI-related products maintained triple-digit growth. At the same time, capital expenditure more than doubled from the previous quarter, adjusted earnings fell, and free cash flow remained deeply negative.

Alibaba reported revenue of RMB 269 billion (USD 39.9 billion) for the quarter ended June 30, up 8.6% year-on-year (YoY). That marked an acceleration from 2.9% growth in the March quarter.

The standout was AI cloud and compute services. Revenue from the segment increased 44.9% to RMB 48.4 billion (USD 7.2 billion), while revenue from AI-related products reached RMB 12.4 billion (USD 1.8 billion). The latter has recorded triple-digit growth for 12 consecutive quarters, according to Alibaba.

That growth has required a sharp increase in spending. Alibaba recorded RMB 67.7 billion (USD 10 billion) in capital expenditure during the quarter, up 75% from a year earlier and 151.6% from RMB 26.9 billion (USD 4 billion) in the March quarter.

The sequential jump was notable because it reversed four quarters of moderating expenditure. Alibaba’s capex declined from RMB 38.7 billion (USD 5.7 billion) in the June 2025 quarter to RMB 31.5 billion (USD 4.7 billion) in September, RMB 29 billion (USD 4.3 billion) in December, and RMB 26.9 billion in March, before rising to RMB 67.7 billion in June.

Alibaba said the increase reflected continued investment in AI infrastructure, including greater CPU computing capacity and higher prices for chip components, as well as the timing of procurement.

Tencent is investing heavily in the same infrastructure race. It recorded RMB 52.8 billion (USD 7.8 billion) in capital expenditure during the June quarter, up about 176.4% YoY based on its disclosed figures. Alibaba therefore spent about 28.2% more than Tencent in absolute terms. Relative to revenue, however, the burden was similar: capex was equivalent to about 25.2% of Alibaba’s quarterly revenue and 25.8% of Tencent’s.

The two companies diverged more clearly on profitability. Tencent’s non-IFRS operating profit increased 9.2% to RMB 75.6 billion (USD 11.2 billion) in the quarter despite its larger YoY increase in capex. Alibaba’s adjusted EBITA fell 29.6% to RMB 27.3 billion (USD 4.1 billion), which it attributed primarily to technology investment.

The pressure was particularly visible in Alibaba’s AI labs and applications business, where adjusted EBITA losses widened to RMB 13.9 billion (USD 2.1 billion) from RMB 3.2 billion (USD 474.8 million) a year earlier. Alibaba attributed the increase primarily to greater AI investment and inference costs associated with Qwen, its family of AI models.

That distinction is important when assessing Alibaba’s headline profit. Net income fell 75.4% YoY to RMB 10.4 billion (USD 1.5 billion), but AI spending alone did not account for the decline. Alibaba also cited lower gains from investment disposals and lower mark-to-market gains on equity investments, alongside lower income from operations.

Cash generation showed the cost of the infrastructure push more directly. Free cash flow was negative RMB 44.7 billion (USD 6.6 billion), compared with an outflow of RMB 18.8 billion (USD 2.8 billion) a year earlier. Alibaba said the deterioration was mainly due to increased cloud infrastructure expenditure.

Tencent also recorded negative free cash flow of RMB 13.8 billion (USD 2 billion), with capex payments and prepayments for AI-related computing capacity among the contributing factors. The companies use different definitions and classifications, so a direct comparison is imperfect, but both are committing substantial cash to expanding AI capacity.

Alibaba is already reporting strong growth in its AI infrastructure businesses. Revenue from AI cloud and compute services increased 44.9% YoY to RMB 48.4 billion. Baidu, meanwhile, reported 50% YoY growth in its narrower AI cloud infrastructure business to RMB 7.3 billion (USD 1.1 billion). The figures are not directly comparable, however, because Alibaba’s newly configured segment also includes chip developer T-Head Semiconductor.

The acceleration in AI comes as Alibaba’s traditional commerce engine loses momentum. China e-commerce revenue fell 8.3% to RMB 110.9 billion (USD 16.5 billion), while customer management revenue declined 7.5%.

Quick commerce moved in the opposite direction. Revenue from the business jumped 45.1% to RMB 53.3 billion (USD 7.9 billion), equivalent to about 48.1% of China e-commerce revenue. A year earlier, the ratio was about 30.4%.

Investors in New York initially recoiled from the combination of weaker earnings and higher spending. Alibaba’s American depositary shares opened 4.2% lower on August 20 and fell as much as 5.4%, before reversing those losses to close 1.3% higher at USD 130.53.

The reaction in Hong Kong was similarly volatile when trading resumed on August 21. Alibaba’s shares opened 2.4% higher at HKD 129.2 (USD 16.5) and climbed as much as 2.9%, before reversing course. The stock subsequently fell as much as 1.7% below its previous close during afternoon trading.

Note: HKD, RMB figures are converted to USD at rates of HKD 7.84 = USD 1 and RMB 6.74 = USD 1 based on estimates as of August 21, 2026, unless otherwise stated. USD conversions are presented for ease of reference and may not fully match prevailing exchange rates.