Overview

  • In its fiscal first quarter, Alibaba's revenue increased by 9% year-over-year to 268.95 billion yuan ($40 billion), slightly surpassing the analyst forecast of 268.88 billion yuan. However, net income saw a significant decline of 75%, dropping to RMB 10.44 billion ($1.6 billion).
  • Alibaba Cloud's external revenue surged by 45%, with AI-related product revenue marking its twelfth consecutive quarter of triple-digit growth, reaching 12.38 billion yuan ($1.82 billion).
  • Capital expenditures soared by 75% to 67.7 billion yuan ($10 billion), resulting in a free cash flow outflow of $6.6 billion. Consequently, shares listed in the U.S. fell by as much as 5% before settling at a decrease of around 3.5%.

On Thursday, Alibaba announced its fiscal first-quarter revenue of 268.95 billion yuan, approximately $40 billion. This marks a 9% increase from the previous year and slightly exceeds the analysts' expectations of 268.88 billion yuan.

This growth represents the fastest quarterly increase the company has seen in nearly three years, primarily driven by its cloud and AI sectors.

The cloud segment is the primary driver of this growth. Alibaba Cloud's external revenue growth reached 45%, while revenue from AI-related products hit 12.38 billion yuan ($1.82 billion), achieving its twelfth straight quarter of over 100% year-over-year growth. CEO Eddie Wu credited this success to the enhanced commercialization of Alibaba's comprehensive AI initiatives, as stated in the company's earnings report.

However, this growth comes at a cost. Capital expenditures rose by 75% to 67.7 billion yuan ($10 billion), attributed largely to rising chip prices and the need to expand computing capacity to meet the soaring demand for AI. Consequently, the company experienced a free cash flow outflow exceeding $6.6 billion for the quarter, according to Bloomberg.

Wall Street reacted swiftly, with Alibaba's U.S.-listed shares dropping about 5% shortly after the market opened, before recovering slightly by midday.

The AI Distribution Strategy

Alibaba's cloud growth coincides with its intensified focus on distributing its Qwen models rather than merely training them. Earlier this month, Alibaba released Qwen 3.8-Max, its most advanced model, as open weights for the first time at this scale. In April, it also discontinued the free tier of its Qwen Code coding agent.

The company is also expanding its reach beyond China. Apple is collaborating with Alibaba to combine its in-house model with Qwen, aiming to introduce Apple Intelligence to Chinese iPhones. This partnership could position Apple as the first foreign entity permitted to operate a proprietary AI model within China.

This distribution strategy is already reflecting in the statistics: Chinese open-weight models rose from under 2% of tokens generated on OpenRouter in late 2024 to around 61% by mid-2026, even as Alibaba's quarterly profit declined dramatically by 75%.