Alibaba (BABA, 9988.HK) Stock Falls 3% to HK$125 After Profit Plunges 76%

Alibaba shares fell 3% to HK$125 on Friday after quarterly net income plunged 76%. Net income attributable to shareholders dropped to RMB10.54 billion from RMB43.12 billion a year earlier. Revenue still rose 9% to RMB268.95 billion, beating consensus estimates. The gap between growth and profit came from a sharp jump in AI spending. 

Investors weighed strong cloud momentum against a shrinking bottom line, and the market chose caution over growth optimism.

$BABA Alibaba's US-listed shares fell nearly 3% Thursday after the Chinese tech giant reported a 75% drop in profits for the June quarter.

The profit collapse was driven by a jump in AI-related spending. The result underscores how aggressive AI capex is now pressuring margins…

— Finance Spot (@financespotnews) August 21, 2026

Revenue Growth Outpaces Profit By A Wide Margin

Alibaba’s top line stayed healthy even as profit collapsed. Revenue reached RMB268.95 billion, up 9% year over year and slightly above the RMB268.88 billion LSEG estimate. Non-GAAP net income fell 38% to RMB20.72 billion, missing the RMB25.6 billion consensus. 

Adjusted EBITA dropped 30% as technology investment accelerated. The disconnect between sales growth and profit erosion left analysts split on how to value the stock going forward.

AI Spending Drives Capital Expenditure Higher

Capital expenditure jumped 75% to RMB67.7 billion, roughly $10 billion, for the quarter. Alibaba (NYSE: BABA) cited higher component prices, expanded CPU-compute capacity, and uneven customer purchase timing. Cloud revenue rose 45% to RMB48.4 billion, with AI-related products posting triple-digit growth for a twelfth straight quarter. 

Alibaba has raised prices on AI compute and storage services by up to 34% since March, aiming to offset rising infrastructure costs.

Adjusted Earnings Miss Wall Street Expectations

The adjusted earnings per ADS fell 42% to $1.26, well below the $1.85 analyst estimate. Adjusted net income declined 38% to $3.05 billion. GAAP net income plunged 75% to $1.54 billion on a dollar basis. Alibaba’s U.S.-listed shares fell as much as 5% in early trading before settling near a 3% to 4% decline. Management attributed most of the earnings pressure directly to technology investment.

JUST IN: Alibaba's net income plunges 75% in the June quarter as AI spending surges, sending its US-listed shares lower in premarket trading. pic.twitter.com/a4px9kOsOM

— HIT.com (@HIT) August 20, 2026

Analysts Weigh AI Payoff Against Near-Term Pressure

Alibaba has now missed consensus EPS estimates for several consecutive quarters heading into this report. Heavy AI infrastructure spending and aggressive cloud pricing continue to squeeze margins. Core e-commerce units Taobao and Tmall face structural share loss to lower-cost rivals. Still, cloud growth acceleration keeps some analysts constructive, arguing the AI investment cycle could pay off within a few years.

Broader Sector Context

Alibaba’s results echo pressure seen across Chinese tech peers investing heavily in AI infrastructure. Tencent and other cloud providers face similar capital-intensity questions this earnings season. The pattern also mirrors AI-driven margin compression at Nebius and other emerging compute providers. 

For Alibaba, the near-term test is whether cloud momentum eventually offsets the current profit squeeze from AI capital spending.

Final Thoughts

Alibaba’s revenue and cloud growth stayed strong, but AI spending crushed near-term profit. The market punished earnings optics over long-term strategy. Whether this investment cycle pays off remains the key question for BABA investors ahead.

Disclaimer:

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