Alibaba's Profit Falls 75% as the Company Bets Big on AI

Key points

• Alibaba's net income fell 75% in the quarter ending June 2025, compared with the same period a year earlier.
• Capital expenditure, meaning money spent on buildings, servers and chips, rose 75% to 67.7 billion Chinese yuan (roughly $9.3 billion).
• Revenue at Alibaba's cloud division, the part of the business that sells computing power to other companies, grew 45% year-on-year to 48.4 billion yuan.
• U.S.-listed Alibaba shares dropped around 4% in early trading Thursday after the results were published.

Alibaba is spending heavily on artificial intelligence. The bill is big enough to swallow most of its profit.

The company reported that net income, the money left after all costs are paid, crashed 75% in the April-to-June quarter compared with the same three months last year. The cause was not falling sales. It was the sheer cost of building AI infrastructure, the warehouses full of servers and chips that AI services need to run.

What exactly did Alibaba spend the money on?

Capital expenditure jumped 75%, reaching 67.7 billion yuan in the quarter. Alibaba said the spike came from three things: unpredictable timing of customer orders, a big increase in CPU capacity (CPUs are the general-purpose processors that handle the bulk of computing work), and higher prices for chips across the board.

Chip costs have risen sharply across the industry. Export restrictions on advanced U.S. chips have pushed Chinese companies to pay premium prices for whatever they can source, and demand everywhere has outpaced supply.

Is the cloud business actually growing?

Yes, strongly. Cloud revenue hit 48.4 billion yuan, up 45% from a year ago. That matters because Alibaba's cloud unit is the part of the company investors watch most closely when judging whether AI spending will eventually pay off. It is a similar story to Microsoft and Google, both of which report losses in some quarters as they build AI infrastructure, then point to surging cloud sales as evidence the strategy is working.

Alibaba is making the same argument: spend now, earn later.

What does this mean for ordinary people?

If you invest in Alibaba, or in funds that hold it, Thursday was a rough morning. Shares fell roughly 4%, first reported by CNBC Tech, after the results came out before the U.S. market opened.

For everyone else, the story is a useful window into how expensive the AI boom really is. Every chatbot response, every AI-generated image, every smart search result runs on racks of chips inside enormous buildings. Someone has to pay for those buildings. Right now, at Alibaba and at rivals across the world, that cost is enormous enough to turn a profitable quarter into a very lean one.

Whether the investment pays off depends almost entirely on whether cloud customers keep signing up at the current pace.