Profit down 75%, capex up 75%. Alibaba just showed what its AI bet is costing it
On Thursday, Alibaba announced that its net profit for a single quarter had plunged by three-quarters. In those same three months, it spent 206 billion crowns on data centers and slashed its share buybacks from $11.9 billion a year to $162 million a quarter. This isn't a crisis; it's a decision: China's largest e-commerce player just stopped being a company that gives money back to shareholders and became one that buries it in compute power. Management promises it will pay off in three years.
Key points
Net profit fell 75%. Capital expenditure in the same quarter rose by exactly 75%.
Share buybacks dropped from $11.9 billion in fiscal 2025 to $162 million in the latest quarter.
Cloud accelerated to 45% growth, but the new AI Labs segment deepened its loss to 13.9 billion yuan.
Free cash flow ended at minus 44.7 billion yuan, while management promises a return on investment "in three years".
The Chinese e-commerce core that funds the whole bet fell 8%.
Alibaba $BABA released results for the June quarter on Thursday, and the market reacted in a way that has become almost a ritual over the past year: revenue roughly in line with expectations, profit deeply below them, shares down. During trading, it lost as much as 4.6% and hovered around $125.
The numbers themselves, though, aren't the interesting part. What's interesting is the symmetry they offer. Net profit under U.S. accounting standards fell 75% year over year to 10.4 billion yuan. Capital expenditure in the same quarter rose 75% to 67.7 billion yuan, roughly 206 billion crowns. In a single three-month period. The two figures aren't related on the books—capex only hits the income statement later through depreciation. But as a picture of where the company's money is flowing, they fit perfectly: cash that used to go to shareholders now ends up in concrete, copper, and chips.
Management doesn't even hide it. CFO Toby Xu said on the conference call that the company will break even on AI investments in about three years and will try to shorten that to two and a half years. CEO Eddie Wu reiterated the goal of reaching $100 billion in external cloud revenue by 2030, roughly four times today's run rate. A company that two years ago was buying back its own shares at $12 billion a year now spends virtually every free dollar on compute capacity.
Investors thus face a question that can be stated very simply, and yet no one has a reliable answer. When a Chinese giant takes its cash machine and lights it in a furnace of data centers, is it building a moat no one can take away—or just elegantly destroying capital in a market where compute power gets cheaper year after year?