Alibaba Group Holding (NYSE:BABA) reported fiscal first-quarter results that beat revenue expectations, driven by robust demand for its AI-powered cloud services. However, a dramatic increase in capital expenditures raised concerns about near-term profitability, sending U.S.-listed shares down approximately 4% in premarket trading on Thursday.
Revenue and Cloud Performance
For the quarter ended June 30, 2026, Alibaba's group revenue rose 9% year-over-year to RMB268.95 billion, narrowly surpassing the LSEG consensus estimate of RMB268.88 billion by just RMB70 million, or about 0.03%. The standout performer was the AI cloud and compute segment, which saw revenue jump 45% to RMB48.44 billion, up from RMB33.41 billion in the same period last year. This growth underscores the accelerating adoption of AI technologies across Alibaba's customer base.
Capital Expenditure Surge
The stronger growth came at a steep price. Capital expenditure (capex) climbed 75% to RMB67.68 billion, compared with RMB38.67 billion a year earlier. This spending surge reflects Alibaba's aggressive investment in AI infrastructure, data centers, and computing capacity. Notably, capex absorbed 25.2% of each revenue yuan, up from 15.6% in the prior-year quarter. Sequentially, capex more than doubled from RMB26.89 billion in the March quarter, indicating that the company is installing capacity well ahead of booked sales.
CEO Eddie Wu had previously framed this trade-off in May, stating, “Our full-stack AI investments have progressed from incubation to commercialization at scale.” The company has signaled that planned AI spending could exceed RMB380 billion over the next three years.
Investor Concerns and Market Reaction
Investors are not questioning the demand for Alibaba's AI services; rather, they are focused on the conversion of that demand into durable cash returns. The revenue beat was minimal, while capex reached nearly 1,000 times that beat, highlighting the heavy investment burden. The premarket decline of about 4% reflects these concerns.
Alibaba's performance stands out among its Chinese internet peers. Baidu (NASDAQ:BIDU) reported a 4% revenue decline but saw its AI-powered core grow 25%, while JD.com (NASDAQ:JD) experienced a roughly 3% revenue dip. Both stocks also fell in reaction to their earnings, with Baidu down about 7% and JD down 7% in the U.S. and more than 10% in Hong Kong.
Analyst Outlook
Despite the market's cautious response, analyst sentiment remains overwhelmingly bullish. According to an S&P Global poll, 38 of 40 analysts rate the ADR as Strong Buy or Buy, with an average price target of $189.79 and a range of $92.36 to $242.40. However, this consensus increases the burden on future results to demonstrate operating leverage and margin expansion.
Looking Ahead
Alibaba's earnings call is scheduled for 7:30 a.m. EDT. Investors will be listening for updates on utilization rates, capex timing, cloud margins, and any revisions to the three-year AI budget. The key question remains whether the massive capital outlay will translate into sustained profitability and shareholder value.
As the AI race intensifies, Alibaba is betting big on its cloud infrastructure to capture a larger share of the growing market. The company's extended “618” shopping festival also supported its e-commerce business, but the tech giant's future hinges on how quickly it can monetize its AI investments.
