Alibaba’s Cloud Is on Fire: Triple-Digit AI Growth Ignites Rally

Alibaba’s latest quarters makes one thing crystal clear: this is now an AI-and-cloud growth story with an e-commerce empire attached, not the other way around. The company beat revenue expectations, leaned hard into its Qwen AI strategy, and told investors—again—that margins are going to be sacrificed at the altar of infrastructure and quick commerce for a while. Markets seem fine with that trade-off for now: Alibaba’s ADRs are up about 4% in early trading and drifting toward a test of the 50-day moving average around $168, extending what has already been a powerful year-to-date run.

Headline numbers were mixed but skewed positively where investors care most. Revenue rose 5% year over year to RMB 247.8 billion (about $34.8 billion), ahead of estimates in the RMB 243 billion range and closer to 15% growth on a like-for-like basis once disposed assets are stripped out. The problem – at least optically – is profitability. Net income fell 53% year on year to RMB 20.6 billion, while non-GAAP net income dropped 72% to RMB 10.4 billion. Operating income plunged 85%, and operating margin compressed to just 2% from 15% a year ago. Adjusted EBITA and EBITDA were down sharply as well. Management is explicit about why: heavy investment in quick commerce, user experience, and AI/cloud infrastructure.

Those investments are visible in the cash flow statement. Operating cash flow fell 68% year on year to RMB 10.1 billion, and free cash flow swung to an outflow of RMB 21.8 billion versus a solid inflow in the prior year period. Over the past four quarters Alibaba has deployed roughly RMB 120 billion in capex—much of it targeted at AI and cloud infrastructure—and has separately laid out plans to invest around $53 billion in AI over the next three years. Near-term profitability, as management admits, will “fluctuate.” The bet is that owning the rails and models of China’s AI stack will be worth far more than the foregone margins.

Cloud is where that thesis is already starting to show up in the numbers. Cloud Intelligence Group revenue climbed to RMB 39.8 billion (about $5.6 billion), up 34% year over year, with revenue excluding consolidated subs rising 29%. The driver is public cloud and, more specifically, AI workloads. AI-related product revenue grew at a triple-digit pace for the ninth straight quarter as more enterprises adopt Alibaba’s AI services, from infrastructure to higher-value tools like coding assistants. At September’s Apsara Conference, Alibaba showcased a fully upgraded AI stack—from foundation models and high-performance networking to distributed storage, intelligent clusters, and its Platform for AI. It also highlighted Qwen’s open-source momentum: over 180,000 derivative models have been built on the Qwen family on Hugging Face, more than double the second-place player. Third-party research pegs Alibaba Cloud’s share of China’s AI cloud market at 35.8%, reinforcing its position as the country’s core AI infrastructure provider.

The consumer-facing side of that AI strategy is Qwen the app, and here the early signals are eye-catching. Alibaba said the Qwen app surpassed 10 million downloads in its first week of public beta, making it one of the fastest-growing AI applications to date and a top-three app in China’s Apple App Store. Management clearly doesn’t see Qwen as just another chatbot front-end. The plan is to deeply integrate lifestyle and productivity services—digital maps, local services, food delivery, travel, office tools, e-commerce, education, and even health guidance—directly into Qwen. On the conference call, executives noted that Qwen will gradually integrate e-commerce, map navigation, and local services, essentially turning it into an AI-native interface for Alibaba’s broader ecosystem. For investors, that sets up a flywheel: more usage leads to better models, better models drive more commerce and services engagement, which in turn supports cloud and advertising revenue.

E-commerce itself remains the financial backbone, even if AI gets the headlines. In the Alibaba China E-commerce Group, customer management revenue rose 10% to RMB 78.9 billion, driven by higher take rates and the increasing penetration of tools like Quanzhantui and software service fees. Quick commerce is a key strategic focus: logistics efficiency is improving, unit economics have substantially strengthened since September, and Alibaba has onboarded offline stores from about 3,500 Tmall brands to its on-demand channel. That push helped drive a rapid year-on-year increase in monthly active consumers on the Taobao app, with the 11.11 Global Shopping Festival delivering double-digit consumer growth. High-value 88VIP members now exceed 56 million and continue to grow at a double-digit pace, giving Alibaba a loyal, high-spend cohort to cross-sell into the AI and services stack.

The international commerce story is quieter but constructive. Alibaba International Digital Commerce Group revenue rose 10% year over year to RMB 34.8 billion, with adjusted EBITA swinging to a modest profit thanks to logistics optimization and efficiency gains. AliExpress is leveraging local inventory in more than 30 countries via its “AliExpressDirect” model and rolling out its “Brand+” program to help Chinese brands go global. On the wholesale side, the Accio AI-powered procurement engine has launched an AI Agent version to improve sourcing efficiency. It’s another example of Alibaba embedding AI into core commerce flows, rather than keeping it siloed as a separate product.

As for outlook, management isn’t giving hard forward guidance by Western standards, but the message is consistent: the two core engines are “AI + Cloud” and “consumption,” and both are expected to deliver strong growth, albeit with volatile profitability as the investment cycle runs. Cloud is positioned as the long-term profit and strategic moat, with continued capex to capture AI demand and reinforce leadership. In e-commerce, the focus is on scaling quick commerce, driving better monetization on Taobao and Tmall, and strengthening loyalty via 88VIP while improving unit economics and operating efficiency.

For equity holders, the trade-off is straightforward: a revenue beat, accelerating cloud and AI momentum, reinforcing data points around Qwen’s early traction, and improving e-commerce engagement on one side; sharply lower margins, weaker free cash flow, and a more capital-intensive model on the other. Judging by the 4% move higher and the attempt to reclaim the 50-day moving average, the market is currently voting for the growth-and-AI story. The risk, as always, is that execution or macro conditions in China knock that narrative off course. For now, though, Alibaba looks like one of the cleaner ways to own China’s AI build-out, with a still-formidable e-commerce franchise providing the cash engine to fund it.