Alibaba’s AI and Cloud Revenue Surge 38% Despite Overall Growth Slowdown

China’s Alibaba announced accelerated growth in its artificial intelligence and cloud businesses for the latest quarter, fueled by the AI boom, despite a modest 3% overall revenue increase to 243 billion yuan ($36 billion).

The revenue from its Cloud Intelligence Group, which specializes in cloud computing and AI, surged 38% year-over-year to 41.6 billion yuan ($6.1 billion) in the January-March quarter. This growth outpaced the 36% and 34% increases recorded in the two preceding quarters, respectively.

However, Alibaba reported an operational loss of 848 million yuan ($125 million) for the quarter—a key profitability metric for its core businesses. This marked a sharp decline from a 28.5 billion yuan profit during the same period last year.

The rising expenses, which weighed on profitability, were primarily attributed to increased technological investments. As global tech firms race to expand infrastructure to meet surging AI demand, Alibaba has committed to investing at least 380 billion yuan over three years in cloud computing and AI infrastructure.

The Hangzhou-based company, which employs approximately 130,000 people, also announced this week that its flagship Qwen AI app is now fully integrated with its e-commerce platform Taobao. This integration enables users to “browse, compare, place orders, and manage deliveries through natural conversation.”

Additionally, Alibaba launched its “agentic” AI tool Wukong in March to expand its commercial offerings and has raised prices for select AI services.

“Alibaba’s AI has moved beyond the initial investment phase and progressed commercialization at scale.”

CEO Eddie Wu made this statement on Wednesday during a prepared remarks segment of an earnings call.

Following the results announcement, Alibaba’s U.S.-traded shares climbed more than 7%.

As tech companies grapple with the challenge of boosting AI-related revenue and demonstrating the return on massive investments, analysts remain optimistic about Alibaba’s trajectory. Jacob Cooke, CEO of Beijing-based consultancy WPIC Marketing + Technologies, stated, “we should expect AI-related growth to accelerate further.”

In March, Alibaba set an ambitious goal to surpass $100 billion in annual AI and cloud revenue within the next five years.

Meanwhile, Tencent, a major rival in the AI space, reported weaker-than-expected revenue for the January-March quarter on Wednesday. While its net profit rose 21%, it fell short of expectations. Some analysts, however, believe Tencent’s AI investments are beginning to yield returns.

According to Chelsey Tam, an analyst at Morningstar, capital expenditure among Chinese AI companies is likely to remain high, as “the investment phase is far from over.” She noted that these firms are shifting focus from user acquisition to monetization.

— Chan Ho-Him, AP business writer