Alibaba’s AI cloud growth surge drives earnings despite soaring tech spending

Tech giant posts fastest growth in cloud and AI revenue in 22 quarters, with capex up 75% amid fierce competition in the sector

Alibaba Group Holding on Thursday reported revenue growth of 45 per cent for its cloud and artificial intelligence division in the June quarter, driving adjusted profit to a better-than-expected 27.3 billion yuan (US$4 billion).

AI Cloud and Compute Services, the Chinese tech giant’s new business segment covering its cloud business and T-Head chip arm, posted 48.4 billion yuan in revenue for the three months ended June 30, marking its fastest growth pace in 22 quarters.

The segment’s AI-related product revenue maintained triple-digit growth for the 12th straight quarter, hitting 12.4 billion yuan, up from 8.97 billion yuan in the previous quarter.

Driven by these AI gains, the Hangzhou-based company’s total revenue increased 9 per cent year on year to 269 billion yuan for the quarter, in line with the Bloomberg consensus estimate of 268.5 billion yuan. That was faster than the 3 per cent growth seen in the previous quarter.

Adjusted Ebitda – earnings before interest, taxes and amortisation, and a measure of profitability – dropped by 30 per cent year on year to 27.3 billion yuan, compared with the analyst consensus forecast of 26.6 billion yuan.

Capital expenditure also surged 75 per cent from a year earlier to 67.7 billion yuan, compared with 26.9 billion yuan recorded in the previous quarter.

Free cash outflow in the reported quarter more than doubled to 44.7 billion yuan from 18.8 billion yuan a year earlier, as heavier investment in cloud infrastructure further strained cash generation.