Alibaba’s AI business is booming, but net profit has fallen. Stock price opens high and falls

Alibaba Group announced a 34% growth in its cloud business, better than market expectations, but the market also questioned the sustainability of investments in artificial intelligence (AI) infrastructure.

Alibaba Group announced a 34% growth in its cloud business, better than market expectations, but the market is also concerned that the group has invested heavily in consumer subsidies and data center construction to catch up with the artificial intelligence boom, leading to a continuous decline in profits.

Alibaba released its second quarter report as of the end of September on Tuesday (November 25th). Driven by the cloud business of the flagship model “Tongyi Qianwen”, the revenue for the quarter increased by 5% year-on-year to RMB 247.795 billion (approximately SGD 45.5 billion), exceeding expectations of RMB 245.2 billion.

If we do not consider the revenue from disposed businesses of Gaoxin Retail and Intime, the revenue growth of the same caliber can reach 15%. However, after adjustment, the group earned 72% less to 10.352 billion yuan, which is lower than the expected 13.5 billion yuan.

Bloomberg pointed out that strong performance may further boost investors’ confidence in betting that Alibaba will become a leader in AI development. Alibaba has accelerated the release of its AI model and re launched the Tongyi Qianwen mobile application this month, hoping to replicate OpenAI’s ChatGPT success. The application has achieved rapid growth since its launch.

But the sustainability of AI infrastructure investment has also been questioned by the outside world, especially in the context of unclear profit paths. Wu Yongming, CEO of Alibaba, denied that the market was worried about the AI investment foam at the earnings call Tuesday. He stated that the company plans to continue investing aggressively in an environment of rapidly growing demand and intense competition.

The market is also paying attention to whether instant retail investment has peaked and affected profit performance. Alibaba’s Chief Financial Officer, Xu Hong, responded at the performance meeting that from the perspective of flash purchases, the overall investment in the previous quarter “will be a high point”, but with the improvement of efficiency, including significant improvement in the unit economy (UE) model and the stabilization of scale, it is expected that investment will significantly shrink this quarter.

Xu Hong also warned that due to intensified competition and reinvestment, the growth rate of e-commerce customer management revenue will slow down and profits will experience “short-term fluctuations”.

Alibaba’s stock price once rose 4% before the US stock market, but fell after the earnings call and closed up 3.19%. As of 10am on Wednesday (26th), Alibaba’s stock price fell 0.92% in the Hong Kong stock market.