Alibaba Sacrifices Profits to Fuel AI Growth

Artificial intelligence accounts for a rapidly growing share of Alibaba Group’s revenue, and it will deliver a return on the substantial investment the company is making in AI infrastructure, CEO Eddie Wu said Wednesday (May 13).

Speaking during the company’s earnings call for the quarter ended March 31, Wu said that AI-related product revenue now accounts for 30% of its Cloud Intelligence Group’s revenue and that it will account for more than 50% in about a year.

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 group’s AI revenue has seen triple-digit growth for 11 consecutive quarters. This has brought AI product revenue to where it accounts for 30% of the group’s revenue, per the presentation.

“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,” Wu said during the call. “Against this backdrop, Alibaba’s AI has moved beyond the initial investment phase and progressed commercialization at scale.”

Amid this growth, Alibaba Group’s EBITDA fell by 61% year over year, which the company said was primarily attributable to its investment in technology businesses, quick commerce and user experiences, according to a Wednesday earnings release.

Asked by an analyst how the company’s management balances its aggressive AI spending against earnings stability, Wu compared it to investing in factories in order to profit from manufacturing in the future.

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

Overall, during the quarter, Alibaba saw year-over-year revenue growth of 3%. When revenue is compared on a like-for-like basis, with revenue from two businesses that Alibaba sold (Sun Art and Intime) excluded, that figure rises to 11%, according to the earnings release.

Alibaba Group’s two eCommerce businesses, which it dubs “consumption businesses,” grew at a slower pace. Alibaba China E-commerce Group and Alibaba International Digital Commerce Group each saw a revenue increase of 6% year over year, according to the presentation.

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