Alibaba Profits Squeezed by AI, Cloud Investments

Alibaba's fourth-quarter revenue increased by 3%, reaching 243.38 billion yuan. However, the tech giant's profits were significantly impacted by ongoing investments in artificial intelligence and cloud infrastructure, alongside spending on its quick commerce segment. Adjusted earnings per American Depository Share (ADS) of 0.62 yuan missed analyst forecasts of 5.79 yuan, leading to a decline in its U.S.-listed shares.

The Cloud Intelligence Group demonstrated robust growth, with revenue surging 38% year-over-year to 41.63 billion yuan. This increase aligns with expectations and highlights the growing demand for AI services. Alibaba has been actively integrating AI into its operations, enhancing its chatbot Qwen to allow direct shopping on its Taobao and Tmall marketplaces.

To capitalize on AI opportunities, Alibaba recently separated its AI businesses from its cloud computing arm. CEO Eddie Wu is now leading the newly formed 'Alibaba Token Hub' group, with a strategic goal of achieving over $100 billion in combined external revenue from AI and cloud divisions within the next five years. AI-related products currently contribute 30% to the Cloud division's external customer revenue, indicating a return on investment, albeit with associated costs.

Excluding one-time items, Alibaba's net income dropped by 99.7%, and adjusted EBITA decreased by 84%. The company attributed these declines to substantial investments in its technology businesses and the quick commerce segment. While China's e-commerce business, including quick commerce, exceeded revenue estimates at 122.22 billion yuan, the international e-commerce segment lagged, contributing to total revenue missing estimates.