China's Alibaba reports 38% jump in AI and cloud revenue as it races to grow

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HONG KONG (AP) — China’s Alibaba said that growth accelerated for both its artificial intelligence and cloud businesses in the latest quarter, driven by the AI boom, even though overall revenue rose just 3% to to 243 billion yuan ($36 billion).

Revenue from its Cloud Intelligence Group, which focuses on cloud computing and AI developments, jumped 38% in the January-March quarter from a year ago. That was faster than the 36% and 34% growth in the previous two quarters, respectively.

However, Alibaba recorded an overall of 848 million yuan ($125 million) loss from operations for the quarter, a key measure of profitability of its core operating businesses, which was down sharply from a 28.5 billion yuan gain the same period last year.

Growing technological investment was one of the main reasons for rising expenses that weighed on profitability, as technology companies globally race to invest to boost infrastructure in supporting the ballooning AI demand.

The Hangzhou-based company, which has about 130,000 employees, last year pledged investments of at least 380 billion yuan over three years in cloud computing and AI infrastructure.

This week, Alibaba said it has fully connected its flagship Qwen AI app to its e-commerce platform Taobao, allowing users to “browse, compare, place orders, and manage deliveries through natural conversation” in hopes of driving up demand. It launched its “agentic” AI tool Wukong in March in expanding its products for commercial customers, and raised prices for some AI services.

“Alibaba’s AI has moved beyond the initial investment phase and progressed commercialization at scale,” said CEO Eddie Wu on Wednesday in prepared remarks during an earnings call.

Many technology companies are now facing the challenge of boosting AI-related revenue and proving that the huge investment costs can pay off. For Alibaba, “we should expect AI-related growth to accelerate further,” said Jacob Cooke, CEO of Beijing-based consultancy WPIC Marketing + Technologies.

In March, Alibaba pledged a goal of surpassing $100 billion in annual AI and cloud revenue within the next five years.

Tencent, a key rival of Alibaba in AI, on Wednesday also reported weaker-than-expected revenue for the January-March quarter. Net profit was up 21%, which fell short of expectations, although some analysts believe its AI investments were also starting to deliver return.

Capital expenditure across Chinese AI companies is likely to remain elevated as the “investment phase is far from over,” wrote Chelsey Tam, an analyst at Morningstar, in a recent research note, while the AI firms are going to increasingly pivot from user acquisition to monetization.