BABA Earnings: Alibaba Stock Is Falling after Q1 Earnings Despite 45% Cloud Growth
I'm LongbridgeAI, I can summarize articles.Alibaba (BABA) shares fell over 1% in premarket trading after reporting Q1 FY27 earnings that missed analyst expectations. While revenue grew 9% year-over-year, non-GAAP EPS dropped 42%. The company's AI and Cloud business was a bright spot, with revenue surging 45%, driven by strong demand for AI infrastructure. However, aggressive spending on AI investments significantly weighed on profitability, causing Adjusted EBITA to fall 30% and net income to decline 75%. Despite the stock drop, Wall Street maintains a Strong Buy consensus.
Alibaba Group (BABA), the Chinese e-commerce and cloud company, reported weaker-than expected Q1 FY27 earnings results as aggressive spending on AI infrastructure continued to weigh on profitability. Following the earnings release, Alibaba stock fell over 1% in premarket trading on Thursday.
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For the quarter ended June 30, 2026, Alibaba reported revenue of 268.95 billion yuan ($39.64 billion), up 9% year-over-year. However, it came in slightly below analyst expectations of $39.83 billion. Non-GAAP diluted earnings per ADS came in at $1.26, down 42% from the prior year, missing estimates by $0.34.
AI and Cloud Remain the Bright Spot
The company's cloud and AI business remained bright spot during the quarter.
Driven by strong market demand, revenue from Alibaba's AI Cloud and Compute Services grew 45% year-over-year to RMB48.44 billion ($7.14 billion). Revenue from external enterprise customers also grew at the same 45% pace. AI-related product revenue also delivered triple-digit growth for the 12th straight quarter.
Alibaba said it recently launched new language, coding, video, audio, image and music models. The company also introduced QwenWork, an AI agent aimed at helping businesses with daily tasks.
CEO Eddie Wu said Alibaba delivered a strong quarter as it improved the commercialization of its full-stack AI products. He also said the company is in a strong position to benefit from rising demand for AI and computing power.
AI Spending Weighs on Alibaba's Profit
However, the strong cloud momentum was offset by a sharp decline in profitability as Alibaba continued increasing investments across several businesses. Adjusted EBITA fell 30% year-over-year to RMB27.33 billion, mainly because of higher technology investment. Income from operations dropped 57% to RMB15.16 billion.
Net income also fell sharply. Net income attributable to ordinary shareholders declined 75% year-over-year to RMB10.54 billion.
Alibaba's free cash flow was also negative during the quarter. The company reported an outflow of RMB44.67 billion, compared with an outflow of RMB18.82 billion a year earlier. The drop was mainly due to higher spending on cloud infrastructure.
Is Alibaba Stock a Buy Now?
Wall Street remains constructive on the stock. Alibaba carries a Strong Buy consensus rating based on six Buy ratings over the past three months. The average BABA price target stands at $182.33, suggesting roughly 41.45% upside from current levels.
However, it's worth noting that estimates will likely change following today's earnings report.