Alibaba sacrifices profits to fuel AI growth

Artificial intelligence is taking a rapidly growing share of Alibaba Group’s revenue, and CEO Eddie Wu said Wednesday (May 13) that the company expects a return on its substantial investment in AI infrastructure.

AI revenue growth and commercialization

Alibaba Group’s Cloud Intelligence Group, which includes what it calls “AI + Cloud” businesses, saw its revenue increase 40% year over year, according to a presentation released Wednesday.

“Given the certainty of long-term AI demand and our full-stack technology advantages, we expect this trajectory to sustain strong growth over the medium to long term,” Wu said.

The company said its AI revenue has delivered triple-digit growth for 11 consecutive quarters. That performance has brought AI product revenue to a level where it accounts for 30% of the group’s revenue, per the presentation.

Wu also described the shift in AI capabilities as a key driver of demand. “We are at a pivotal inflection point in the evolution from conversational chatbots to autonomous AI agents, which is directly driving explosive growth across three core workload categories: training, inference and agent orchestration,” he said. “Against this backdrop, Alibaba’s AI has moved beyond the initial investment phase and progressed commercialization at scale.”

EBITDA decline tied to investment

Despite the AI momentum, Alibaba Group’s EBITDA fell by 61% year over year. The company said the decline was primarily attributable to investments in technology businesses, quick commerce and user experiences, according to a Wednesday earnings release.

Management’s view on ROI

Asked by an analyst how management balances aggressive AI spending with earnings stability, Wu compared the strategy to investing in factories to profit from manufacturing in the future.

“We see the ROI on this investment in the next three- to five-year period as being extremely clear,” Wu said.

Quarterly revenue performance and segment trends

Overall, Alibaba reported year-over-year revenue growth of 3% for the quarter. On a like-for-like basis—excluding revenue from two businesses it sold, Sun Art and Intime—the growth rate rose to 11%, according to the earnings release.

Alibaba’s two eCommerce businesses, referred to as “consumption businesses,” grew more slowly. Alibaba China E-commerce Group and Alibaba International Digital Commerce Group each saw revenue increase 6% year over year, according to the presentation.

Alibaba’s “all others” segment saw revenue decline by 21% year over year. The company said the drop was primarily due to the sale of Sun Art and Intime.