Alibaba reported a 76% decline in Q1 2026 profit driven by heavy AI infrastructure spending.

Alibaba Group reported Thursday that fiscal first-quarter net income fell 76% to 10.54 billion yuan ($1.55 billion), as the company accelerated capital deployment into artificial intelligence infrastructure and model development. For the quarter ended June 30, total revenue rose 9% year-over-year to 268.95 billion yuan ($39.64 billion). On a non-GAAP basis, which excludes share-based compensation, investment gains and losses, and certain other items, net income declined 38% to 20.72 billion yuan ($3.05 billion). Adjusted EBITA contracted 30% to 27.33 billion yuan ($4.03 billion).

Capital expenditures surged 75% to 67.68 billion yuan ($9.98 billion), primarily directed toward AI infrastructure. Consequently, free cash flow posted an outflow of 44.67 billion yuan ($6.58 billion), widening significantly from the 18.82 billion yuan outflow recorded in the same period last year.

Within its AI Labs and Applications segment—which encompasses AI model development, the Qwen consumer application, and the QwenWork enterprise agent—adjusted EBITA expanded to a loss of 13.86 billion yuan ($2.04 billion), compared with a 3.22 billion yuan loss a year earlier. Alibaba attributed the widening deficit to heightened investments in AI capabilities and elevated inference costs associated with the Qwen app.

Conversely, the cloud division emerged as a key growth driver. Revenue from the AI Cloud and Compute Services segment climbed 45% to 48.44 billion yuan ($7.14 billion), fueled by accelerating adoption of AI products. AI-related product revenue reached 12.38 billion yuan ($1.82 billion), marking the twelfth consecutive quarter of triple-digit year-over-year growth. The segment’s adjusted EBITA more than doubled, rising 133% to 5.63 billion yuan ($830 million).

“We delivered a strong quarter, driven by the improving commercialization of our full-stack AI capabilities,” Chief Executive Officer Eddie Wu said in a statement.

These figures follow a challenging prior quarter, during which Alibaba reported an adjusted net income of just 86 million yuan and its first operating loss since 2021, weighed down by AI infrastructure buildout and quick commerce delivery expenses. At that time, according to Bloomberg, the company pledged to achieve $100 billion in combined annual revenue from cloud and AI operations within five years.

Alibaba’s core e-commerce portfolio delivered mixed outcomes. China Quick Commerce revenue jumped 45% to 53.30 billion yuan, offsetting an 8% decline in China E-commerce revenue to 110.90 billion yuan. Meanwhile, the 88VIP membership tier expanded by double digits year-over-year, reaching approximately 64 million members as of June 30.

While revenue exceeded analyst forecasts, per The Wall Street Journal, investors and analysts had anticipated stronger bottom-line results.