Alibaba could increase its artificial intelligence (AI) spending beyond current projections if demand remains strong, CEO Eddie Wu stated after reporting accelerated sales in the company’s key cloud division. Alibaba’s New York-listed shares rose about 4. 3% in premarket trading as investors looked past a sharp drop in profitability. For the fiscal second quarter ending September 30, Alibaba posted revenue of 247. 8 billion yuan ($34. 8 billion), up 5% from 242. 65 billion yuan the previous year, exceeding LSEG estimates. Investors focused particularly on Alibaba’s cloud computing division, which includes AI-related revenue. Cloud revenue grew 34% year-on-year to 39. 8 billion yuan, surpassing expectations of 37. 9 billion yuan and accelerating from 26% growth in the previous quarter. Wu credited AI investments for driving the cloud unit’s growth, highlighting triple-digit year-over-year growth in AI-related product revenue for the ninth consecutive quarter. Wu emphasized robust and accelerating demand for Alibaba’s AI products, noting the company struggles to keep pace with customer demand and deploy new servers quickly. Alibaba plans to increase spending on AI models and infrastructure beyond its initial 380 billion yuan ($53 billion) three-year investment announced in February. Over the past four quarters, Alibaba spent approximately 120 billion yuan on capital expenditures for AI and cloud infrastructure. Wu suggested the initial 380 billion yuan target “might be on the small side” and did not rule out further increases if demand remains strong. The company is a leading AI player in China; its AI-powered Qwen app reached over 10 million downloads within its first week post-launch, competing with OpenAI’s ChatGPT.

In its cloud division, earnings before interest, taxes, and amortization (EBITA) rose 35% to 3. 6 billion yuan. Wu downplayed fears of an AI bubble, predicting sustained demand for AI over the next three years without hitting capability limits. He expects supply chains supporting data centers and semiconductors—including memory chips and GPUs—to remain tight, with demand outstripping supply. He noted Nvidia-designed GPUs running AI workloads are operating at full capacity, including models three to five years old, addressing concerns about GPU depreciation timelines. Despite strong cloud performance, Alibaba’s overall profitability took a hit due to heavy investments in the competitive instant commerce market, which offers super-fast delivery on selected items. Adjusted EBITA fell 78% year-on-year to 9. 1 billion yuan, partly due to these quick commerce investments. However, investors are overlooking this decline thanks to strong growth in cloud and core China e-commerce operations, which include Taobao, Tmall, and quick commerce. China e-commerce revenue grew 16% year-on-year to 132. 6 billion yuan, accelerating from the previous quarter, while quick commerce revenue surged 60% versus 12% previously. Wu highlighted improvements in quick commerce unit economics and rapid growth in monthly active users on Taobao. Jiang Fan, head of Alibaba’s e-commerce business group, termed quick commerce a “strategic pillar” and stated the company aims to achieve 1 trillion yuan in gross merchandise value (GMV) across its platform within three years.