Alibaba Group (NYSE:BABA) said its stepped-up investments in artificial intelligence, cloud computing and consumption businesses are beginning to translate into faster revenue growth, even as those investments weighed heavily on adjusted earnings and free cash flow in the March quarter.
On the company’s fiscal 2026 fourth-quarter earnings call, Chief Executive Officer Eddie Wu said Alibaba is seeing “tangible business results” from its two strategic priorities of “AI plus cloud” and consumption. Group revenue rose 11% year over year on a like-for-like basis, excluding Sun Art and Intime, while Cloud Intelligence Group’s external revenue growth accelerated to 40%.
Wu said AI-related product revenue achieved triple-digit growth for the 11th consecutive quarter and now accounts for 30% of Cloud Intelligence Group’s external revenue. He said Alibaba expects AI-related products to exceed 50% of external cloud revenue in about one year, becoming the primary growth engine for the cloud business.
AI Revenue Accelerates as Alibaba Highlights MaaS Opportunity
Alibaba reported quarterly AI revenue of RMB 9 billion, with an annual revenue run rate of about RMB 36 billion, or $5.3 billion, according to Chief Financial Officer Toby Xu. Wu said annualized AI-related product revenue has surpassed RMB 35.8 billion.
Management also provided new details on Alibaba’s model and application services business, including its Model Studio platform. Wu said model and application services annualized recurring revenue, including Model Studio, is expected to surpass RMB 10 billion in the June quarter and RMB 30 billion by year-end. In response to a question from Jialong Shi of Nomura, management said ARR on the Bailian platform was already above RMB 8 billion and that reaching more than RMB 10 billion in the quarter was “highly certain.”
In response to Ronald Keung of Goldman Sachs, management said the revenue from model and application services mainly includes API calls on Alibaba’s MaaS platform and AI software subscriptions. Most of the revenue currently comes from API usage, and most of that is driven by Alibaba’s own proprietary models, including Qwen, T-MOR and voice and video generation models, management said.
Management also said demand for AI agents is increasing inference workloads. It said customers have shown acceptance of higher per-token prices as models become more capable, and that Alibaba’s supply is not yet keeping up with demand. The company said MaaS has inherently higher gross margins than IaaS and that rapid growth in the business should have a positive effect on overall gross profit margin.
Heavy AI Spending Pressures Cash Flow and EBITDA
Alibaba’s consolidated revenue for the quarter was RMB 243.4 billion. Xu said total adjusted EBITDA decreased 84%, primarily because of strategic investments in technology businesses, quick commerce and user experience. These impacts were partly offset by growth in customer management services and cloud, along with operating efficiency improvements across businesses.
GAAP net income was RMB 23.5 billion, up 96% year over year.
Operating cash flow was an inflow of RMB 9.4 billion.
Free cash flow was an outflow of RMB 17.3 billion.
Alibaba held approximately $38 billion in net cash as of March 31, 2026.
The board approved an annual dividend of $1.05 per ADS.
Xu said the negative free cash flow was primarily due to significant AI investments made over the past year. He said Alibaba intends to remain “equally resolute” in continuing those investments over the next two years because management views AI as a critical window of opportunity.
CEO Eddie Wu compared Alibaba’s AI investments to building “two factories”: one for AI training and another for inference, both powered by AI data centers. He said the path to returns was clear through monetization of cloud-based IaaS, MaaS and AI-native applications, adding that “there isn’t a single card on our servers that is idle.”
Cloud Margins Expected to Improve Over Time
Alibaba said Cloud Intelligence Group’s adjusted EBITDA margin was relatively stable at 9.1% for the quarter. In response to Joyce Ju of Bank of America, management said Alibaba is prioritizing growth, token consumption and market share over margin in the near term.
Management said physical constraints on chips, memory and other infrastructure are likely to persist for the next three to five years. It also said the cost of deploying a new server this year is more than double what it was a year earlier, giving Alibaba some pricing power with both new and existing customers.
The company said gross margins should benefit from faster growth in MaaS, improvements in inference efficiency and wider deployment of proprietary T-Head chips. Wu said T-Head’s proprietary GPU chips have achieved scaled mass production, with more than 60% of compute capacity already serving external customers in sectors including internet, financial services and autonomous driving.
In response to Gary Yu of Morgan Stanley, management said demand for compute infrastructure by 2033 is expected to be about 10 times Alibaba’s 2022 level. The company said it is likely to exceed its previously stated RMB 380 billion capital expenditure figure, though some computing capacity may also be acquired through operating expenses or partnerships.
China E-Commerce Grows, Quick Commerce Narrows Losses
Alibaba China E-commerce Group revenue rose 6% to RMB 122 billion. Customer management revenue increased 1%, though Xu said the figure was affected by a change in accounting treatment for merchant subsidies. Excluding that contra-revenue impact, CMR would have grown 8% year over year on a like-for-like basis.
Revenue from Alibaba’s quick commerce business increased 57% to RMB 20 billion. Jiang Fan, CEO of Alibaba E-commerce Business Group, said quick commerce order volume was 2.7 times the prior-year quarter, while non-food orders were 3 times the year-earlier level. He said the business improved unit economics through fulfillment and logistics efficiency, as well as order mix optimization.
Jiang said Alibaba is confident quick commerce unit economics will turn positive by the end of fiscal 2027. He also said quick commerce is contributing to customer acquisition, user engagement, transaction growth and monetization in Alibaba’s conventional e-commerce business.
Alibaba China E-commerce Group adjusted EBITDA was RMB 24 billion, down 40%, mainly due to investments in quick commerce, user experience and technology. Xu said excluding quick commerce losses, the segment’s EBITDA would have been stable year over year.
International Commerce Losses Narrow
Alibaba International Digital Commerce revenue grew 6% in the quarter, while its adjusted EBITDA loss narrowed significantly year over year. Xu attributed the improvement to logistics optimization and operating efficiency. He also said the unit economics of AliExpress Choice continued to improve substantially on a sequential basis.
For Alibaba’s “all other” segment, revenue decreased 21% to RMB 65.5 billion, mainly due to the disposal of Sun Art and Intime and lower revenue from Cainiao, partly offset by growth at Freshippo and Amap. The segment posted an adjusted EBITDA loss of RMB 21.2 billion, primarily due to increased investment in technology businesses including foundation models and the consumer-facing Qwen app.
Wu said Alibaba will maintain its focus on long-term growth opportunities in AI, cloud and consumption. “Alibaba is at a pivotal juncture where our technology investments are beginning to pay off commercially,” he said.
About Alibaba Group (NYSE:BABA)
Alibaba Group Holding Limited is a Chinese multinational conglomerate founded in 1999 in Hangzhou, China, by Jack Ma and a group of co‑founders. The company built its business around internet-based commerce and related services and has grown into one of the largest e-commerce and technology companies in the world. Alibaba completed a high‑profile initial public offering on the New York Stock Exchange in 2014.
The company operates a portfolio of online marketplaces and platforms serving different customer segments: Alibaba.com for global and domestic B2B trade, Taobao for consumer-to-consumer shopping, and Tmall for brand and retailer storefronts targeted at Chinese consumers.
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