A sharp acceleration in Alibaba Cloud growth
Alibaba’s cloud division delivered a sharp step up in growth in the latest quarter, underscoring how artificial intelligence is reshaping the company’s business mix. Cloud revenue rose 34 percent year over year to 39.8 billion yuan (about 5.6 billion dollars) in the fiscal second quarter, surpassing expectations and outpacing group growth. Overall revenue increased 5 percent to 247.8 billion yuan (about 34.8 billion dollars). Investors zeroed in on the cloud performance as a sign that spending on AI infrastructure and software is translating into real demand from customers. Shares rose in early U.S. trading before later fluctuations as the market absorbed the mix of rapid cloud growth and heavier investment spending.
Management tied the surge to a wave of demand for training and running AI models on Alibaba Cloud. AI related product revenue posted triple digit growth for the ninth consecutive quarter, highlighting how quickly AI is becoming a larger slice of cloud usage. The consumer facing Qwen app, Alibaba’s rival to ChatGPT, surpassed 10 million downloads in its first week, a sign of brisk appetite for generative tools. Profitability inside cloud also improved. EBITA for the cloud division rose 35 percent to 3.6 billion yuan. At the group level, profits were pressured by large investments in instant commerce, data centers and AI infrastructure, and adjusted EBITA fell sharply. Even so, core commerce metrics remained positive, with China e commerce revenue up 16 percent and quick commerce revenue up 60 percent. Management set a target to reach 1 trillion yuan in quick commerce gross merchandise value within three years.
Why AI is turbocharging the cloud
AI workloads demand far more compute, storage and networking than traditional enterprise software. Training large language models requires clusters of advanced GPUs working for days or weeks, then running those models at scale for search, recommendations, chat assistants and productivity tools requires dense inference capacity. That translates into higher consumption of cloud services and, in many cases, higher revenue per customer. The result is a structural shift inside Alibaba Cloud toward AI heavy usage that is lifting growth well above the company average.
Alibaba CEO Eddie Wu said rising customer adoption of AI is the engine behind the acceleration. He also signaled that investment could climb to meet demand.
Eddie Wu, chief executive officer of Alibaba Group: “Customer demand for AI remains very strong. If demand continues, we are prepared to increase AI investment beyond our previously announced plan.”
Enterprises across finance, logistics, manufacturing and retail are testing and deploying AI assistants, search and code generation. Those use cases pull in additional services like elastic compute, databases, vector search, security and content moderation, creating a broader lift for the cloud portfolio.
How much is Alibaba spending and where
Alibaba has made AI the centerpiece of its long term strategy. The company previously outlined a plan to invest 380 billion yuan over three years to advance cloud and AI infrastructure. Over the past four quarters alone, it deployed about 120 billion yuan into data center capacity, networking, storage, AI accelerators and the software stack that makes these systems efficient and reliable at scale. Management said capital needs could rise from here if customer adoption continues at the current pace.
Wu also pushed back on the idea that AI is a passing fad or overvalued theme. He argued that the supply side of the market remains constrained, which supports pricing and utilization as enterprises move from pilot projects to production deployments.
Eddie Wu, chief executive officer of Alibaba Group: “I do not see an AI bubble. Demand will stay high and supply, especially for data centers and semiconductors, will be tight for the next few years.”
Constraints on advanced chips, tighter export rules between the United States and China and long build times for power and cooling make new capacity harder to bring online quickly. Alibaba is investing in efficiency improvements, model pruning and quantization, better networking and scheduling, and a wider mix of accelerators, including domestic alternatives, to stretch available compute. The goal is to deliver reliable performance while managing costs and supply volatility.
Profit pressure, quick commerce bets, and the near term trade off
The growth story is paired with near term profit pressure. Aggressive investment in instant commerce and AI infrastructure weighed on earnings and cash flow. Adjusted EBITA fell materially in the quarter as the company increased subsidies to build logistics density and accelerated data center projects to meet AI demand. Management’s message is that Alibaba is in an investment phase, prioritizing share gains in strategic categories and compute capacity for AI over immediate margin expansion.
On the commerce side, the company reported strong order growth in China e commerce and rapid expansion in quick commerce. Quick commerce revenue rose 60 percent and the company aims to hit 1 trillion yuan in quick commerce gross merchandise value in three years. Unit economics are improving, with management indicating per order losses have narrowed as scale effects and operational improvements take hold. That said, competition in e commerce and food delivery is intense, and price promotions across the sector have compressed margins for now.
Inside cloud, leadership emphasized that demand remains strong, though growth may reflect practical constraints around GPUs and data center slots. Management described the outlook for cloud revenue growth as high rather than accelerating in the very near term, citing component supply, quarterly fluctuations in internal AI usage and a tough comparison base. The medium term thesis hinges on customers shifting more production AI workloads to Alibaba Cloud as models and tools mature.
What Alibaba is building in AI products
Alibaba’s approach is full stack. The cloud unit is delivering infrastructure, foundation models and application platforms so enterprises can train, fine tune and deploy AI at scale without stitching together multiple vendors. That strategy is designed to make it easier to go from experimentation to production, and to connect AI into commerce, logistics and office workflows inside Alibaba’s ecosystem and among external customers.
Qwen models and the consumer app
Qwen is the flagship family of large language models. The consumer app quickly surpassed 10 million downloads in its first week, signaling broad curiosity about generative AI among users in China. On the developer side, the latest Qwen releases (including the Qwen3 series) add stronger reasoning and coding capabilities, with a mix of sizes for different tasks and cost profiles. The company supports both hosted access on Alibaba Cloud and open source model checkpoints for developers who want to customize on their own infrastructure.
Enterprise AI and platform tools
For enterprises, Alibaba offers a Platform for AI that wraps together data integration, training and inference orchestration, vector databases, monitoring and security. The goal is to shorten build times and lower the operational burden of running AI in production. The Lingma coding assistant is gaining traction among corporate developers, and customers are adopting tools for content generation, product search, customer service bots and knowledge management. These workloads tend to be sticky, since once a company integrates AI into core workflows, switching providers is difficult and costly.
Open source momentum
Open source is a key part of the strategy. The Qwen family has been widely downloaded by developers and serves as a foundation for a large number of derivative models in the community. That feedback loop accelerates improvements and creates more specialized variants for industries like finance, retail and manufacturing. A growing ecosystem of plug ins, retrieval tools and guardrails is helping enterprises put Qwen based applications into production with greater confidence.
Competition at home and abroad
Alibaba Cloud operates in a crowded field. In China, it faces capable rivals in cloud and AI from national champions that compete on performance, price and vertical solutions. Globally, it contends with hyperscalers that have a lead in international markets. Even with that backdrop, Alibaba remains the largest cloud provider in China with market share around one third, supported by scale, cost efficiency and deep integration with services across the company’s network of businesses. Constraints on high end chips from the United States add complexity, but the company’s focus on efficiency and diversified accelerator options can offset part of that pressure.
Outside China, the company is concentrating on regions where it sees product market fit, including parts of Southeast Asia. Regulatory oversight is increasing, especially in Europe where large platforms face stricter obligations under digital services rules. Navigating compliance while expanding the AI product set will be a key management task. The company also maintains a sizable cash position and an active repurchase authorization, providing flexibility as it balances growth, investment and returns.
Highlights
- Cloud revenue rose 34 percent year over year to 39.8 billion yuan (about 5.6 billion dollars), topping expectations.
- AI related product revenue recorded a ninth straight quarter of triple digit growth.
- Overall revenue increased 5 percent to 247.8 billion yuan (about 34.8 billion dollars).
- Cloud division EBITA climbed 35 percent to 3.6 billion yuan.
- Qwen app surpassed 10 million downloads in its first week after launch.
- Management has invested about 120 billion yuan in AI and cloud infrastructure over the past four quarters and may exceed a 380 billion yuan multi year plan if demand stays strong.
- China e commerce revenue rose 16 percent, while quick commerce revenue jumped 60 percent.
- Heavy investment in instant commerce and data centers weighed on near term profitability and cash flow.
- Supply of GPUs and data center capacity remains tight, a constraint that could keep cloud growth high but uneven quarter to quarter.
- Alibaba remains the largest cloud provider in China and is expanding AI offerings for both consumers and enterprises.
