Alibaba Cloud Growth Explodes, But Earnings Evaporate In Costly AI Push

Alibaba Group Holding Ltd. (NYSE:BABA) shares fell Wednesday after the e-commerce and cloud-computing company reported mixed fiscal fourth-quarter 2026 results, as strong revenue growth and accelerating AI momentum were overshadowed by a sharp decline in adjusted earnings. The company reported quarterly revenue of $35.28 billion, up 3% from a year earlier and slightly ahead of analyst estimates of $35.23 billion. Excluding the divested Sun Art and Intime businesses, revenue increased 11% on a like-for-like basis. Adjusted earnings per American Depositary Share came in at 9 cents, missing analyst expectations of $1.12. Adjusted net income fell nearly 100% to $12 million, while adjusted EBITA declined 84% to $740 million as Alibaba increased investments in AI initiatives, Taobao Instant Commerce and user experience improvements. Net income rose 96% year over year, helped by gains from equity investments and the absence of prior-year disposal losses tied to Sun Art and Intime. China Commerce And AI Expansion Alibaba's China E-commerce Group revenue rose 6% to $17.72 billion as the company expanded AI-powered shopping tools and improved profitability in its quick-commerce operations. The company integrated Taobao and Tmall services into its Qwen app and launched the Qwen Shopping Assistant within the Taobao platform to support product discovery, purchase decisions and post-sale services. Alibaba also introduced Wukong, an AI-powered tool designed to help merchants automate workflows and improve operational efficiency. Alibaba said its 88VIP membership program continued growing at a double-digit annual rate, surpassing 62 million members during the quarter. International Commerce Narrows Losses Alibaba International Digital Commerce Group revenue increased 6% to $5.14 billion as the unit moved closer to profitability through logistics optimization and operational efficiency improvements. The company said AliExpress expanded its "Brand+" program during the quarter, with more than 30% of transacting consumers purchasing through the segment. Alibaba.com also launched Accio Work, an AI-powered platform aimed at helping small and medium-sized businesses manage cross-border commerce operations. Cloud Business Benefits From AI Demand Alibaba's Cloud Intelligence Group posted 38% revenue growth to $6.04 billion, driven by increasing demand for public cloud services and AI-related products. The company said AI-related product revenue recorded its eleventh consecutive quarter of triple-digit annual growth. Alibaba also expanded its Model Studio platform and introduced new AI models, including Qwen3.6-Plus, while its chip subsidiary T-Head broadened deployment of its Zhenwu AI chips in automotive and autonomous-driving applications. As of March 31, Alibaba held $75.5 billion in cash and other liquid investments. Operating cash flow fell 66% to $1.36 billion, while free cash flow usage totaled $2.51 billion due to investments in AI infrastructure, cloud expansion and customer acquisition initiatives. As of March 31, 2026, Alibaba had 131,462 employees, up from 128,197 as of December 31, 2025. Executive Commentary Alibaba Group CEO Eddie Wu said the company's AI investments are now scaling commercially, driven by strong growth in cloud, AI models and enterprise applications. Alibaba's Cloud Intelligence Group posted 40% external revenue growth, with AI-related products contributing 30% of revenue. Wu also highlighted momentum in the company's Qwen large language models, including advances in reasoning, coding, video generation and AI agents integrated with Alibaba's e-commerce ecosystem. CFO Toby Xu said Alibaba's AI and cloud investments continue driving business growth, with AI-related product revenue posting triple-digit growth for the 11th straight quarter. He added that China e-commerce customer management revenue rose 8% on a like-for-like basis, while quick commerce operations improved profitability and order values. BABA Price Action: Alibaba shares were down 3.06% at $130.66 during premarket trading on Wednesday, according to Benzinga Pro data. Image via Shutterstock