By Deborah Mary Sophia and Casey Hall
May 13 (Reuters) – China’s Alibaba said it would exceed its planned AI investment of up to 380 billion yuan ($55.96 billion) over the next three years, as early signs of returns from the technology pushes it to ramp-up its cloud-computing capacity.
The company missed market expectations for fourth-quarter profit, but its U.S.-listed shares jumped 7% after executives said Alibaba has a clear outlook for returns on AI spending over the next three to five years.
Like other tech giants, Alibaba has benefited from soaring business demand for AI. Revenue from its Cloud Intelligence Group rose 38% to 41.63 billion yuan ($6.13 billion) from a year ago, in line with estimates but up from the 36% growth in the prior quarter.
“The return on our investments in AI plus Cloud and (e-commerce business) are increasingly clear…our technology investments are beginning to pay off commercially,” CEO Eddie Wu said on a post-earnings call.
Alibaba did not provide detail of any new spending target to replace the one that was announced early last year.
“We aim to maintain growth that is faster than the market average in order to gain larger market share and firmly cement our absolute market leadership position… those are the primary objectives, and margin is still secondary,” he said.
In the quarter to March, the company’s profit came under pressure from investment in AI and cloud infrastructure, as well as ongoing spending on the quick commerce segment that covers deliveries made within 60 minutes.
Adjusted earnings per American Depository Share of 0.62 yuan missed estimates of 5.79 yuan.
However, Wu said Alibaba Cloud will start to see higher margins in the next one to two quarters, and its current investments will boost profit margins in the cloud business.
SURGE IN AI DEMAND
The company said AI-related products accounted for 30% of external customer revenue in the cloud division in the quarter. It expects AI-related revenue to become the primary growth engine in the cloud business and contribute more than 50% of revenues in about a year from now.
In addition to big bets on AI assistants, Alibaba has increased the capability of its chatbot Qwen, which allows users to shop at its online Taobao and Tmall marketplaces by talking with an agent from the Qwen chat window instead of navigating a range of product listings.
The company had earlier this year separated its AI businesses from its cloud computing arm and tasked Wu with leading the “Alibaba Token Hub” group, as it races to make its AI segment profitable.
Excluding items, Alibaba’s net income for the quarter tumbled 99.7%. Total revenue was 243.38 billion yuan, below an LSEG consensus estimate of 247.22 billion yuan.
Alibaba reported revenue of 122.22 billion yuan ($18 billion) in its China e-commerce business, which includes the highly competitive quick commerce segment, exceeding estimates of 119.85 billion yuan.
Executives said they were confident the “unit economics for quick commerce will turn positive by the end of fiscal year ’27”, adding that investments were already helping improve customer acquisition, user engagement and had boosted transactions and monetisation.
($1 = 6.7908 Chinese yuan renminbi)
(Reporting by Deborah Sophia in Bengaluru and Casey Hall in Shanghai; Editing by Louise Heavens, Barbara Lewis and Arun Koyyur)
