Alibaba's AI Bet Pays Off, Shares Surge 9% Amid Soft Revenue Growth

Alibaba's shares surged 9% after a standout quarter for its cloud business, with AI-related product revenue tripling. Despite overall revenue rising only 2% and operating income slipping 3%, the company's diversified bets in AI and international commerce cushioned the blows that hit its peers harder. Alibaba's AI ambitions are becoming clearer, with significant upgrades across its ecosystem and a new AI chip. However, profitability remains under pressure, with cloud EBITDA margins at 8.8%. The battle in food delivery remains fierce, but Alibaba's investments in quick commerce are driving 20% user growth on Taobao.

Alibaba Group's shares surged by 9% following a standout quarter for its cloud business, driven by a tripling in AI-related product revenue. Despite overall revenue rising by only 2% and operating income slipping by 3%, the company's diversified bets in AI and international commerce cushioned the blows that hit its peers harder. Alibaba's AI ambitions are becoming clearer, with significant upgrades across its ecosystem and a new AI chip. However, profitability remains under pressure, with cloud EBITDA margins at 8.8%. The battle in food delivery remains fierce, but Alibaba's investments in quick commerce are driving 20% user growth on Taobao.

The quarterly results highlighted the company's strategic focus on AI, with revenue in the cloud segment surging by 26% to 33.40 billion yuan ($4.67 billion), easily surpassing expectations [2]. This growth was fueled by aggressive price cuts and the integration of AI tools like Qwen3 and Lingma coding assistant, which drove triple-digit expansion [1]. Alibaba's AI cloud market share stands at 33% in China, outpacing competitors like Baidu and Tencent [1]. The company's open-source AI models have attracted 90,000 enterprises, creating a robust developer ecosystem [3].

Alibaba's international commerce revenue rose by 19%, driven by expansion in key markets such as Europe and the Middle East [2]. The company's quick commerce business, which includes platforms like Ele.me and Fliggy, is projected to contribute 1 trillion yuan in annualized incremental gross merchandise volume over the next three years [2]. This segment is driving 20% user growth on Taobao, highlighting Alibaba's ability to leverage its ecosystem for growth.

However, the company faces significant challenges. Chinese consumers remain resistant to paid AI subscriptions, and enterprise API price wars could persist [1]. The battle in food delivery remains intense, with Alibaba's investments in quick commerce weighing on profitability [2]. Alibaba's cloud revenue growth slowed to 4.3% quarter-over-quarter in 2025, reflecting these pressures [1]. Despite these challenges, analysts project a 21% CAGR for Alibaba Cloud’s AI segment through 2027, driven by enterprise demand for generative AI tools like Qwen VLo [1].

Alibaba's forward P/E of 12.92 and analyst forecasts suggest optimism about its long-term potential [1]. The company's $53 billion three-year investment plan in AI signals a commitment to scaling infrastructure, which could yield economies of scale over time [1]. Alibaba's ability to balance aggressive pricing with strategic integration will determine whether this is a fleeting rebound or a sustainable turnaround.

References:
[1] https://www.ainvest.com/news/alibaba-ai-cloud-growth-strategic-buy-opportunity-market-challenges-2508/
[2] https://finance.yahoo.com/news/chinas-alibaba-misses-first-quarter-094223348.html
[3] https://www.cnbc.com/2025/08/29/alibaba-is-developing-a-new-ai-chip-heres-what-we-know-so-far.html