Alibaba to exceed planned AI spending and says margin is secondary

China’s Alibaba will exceed its planned investment of 380 billion yuan (US$55.96 billion) on AI over three years, it said on Wednesday, after reporting quarterly results squeezed by high levels of spending.

It did not give detail of any new target to replace the existing one that was announced early last year.

In the quarter to March, the company’s profits came under pressure from investment in AI and cloud infrastructure, as well as ongoing spending on the quick commerce segment that covers deliveries made within 60 minutes.

Adjusted earnings per American Depository Share of 0.62 yuan fell short of analyst estimates of 5.79 yuan and U.S.-listed shares of the company were down 2.3% in premarket trading.

“We aim to maintain growth that is faster than the market average in order to gain larger market share and firmly cement our absolute market leadership position... those are the primary objectives, and margin is still secondary,” CEO Eddie Wu told analysts on a post-earnings call.

He added he expected higher gross margins for Alibaba Cloud in the next one to two quarters.

Surge in demand

Like other tech giants, Alibaba has benefited from soaring business demand for artificial intelligence. Revenue from Alibaba’s Cloud Intelligence Group rose 38 per cent to 41.63 billion yuan ($6.13 billion) from a year ago, in line with estimates.

In addition to big bets on AI assistants, Alibaba has also increased the capability of its chatbot Qwen, which allows users to shop at its online Taobao and Tmall marketplaces, talking with an agent from the Qwen chat window instead of navigating a range of product listings.

The company earlier this year separated its AI businesses from its cloud computing arm and tasked Wu with leading the “Alibaba Token Hub” group, as it races to make its AI segment profitable.

It has said it is targeting more than $100 billion in combined external revenue from its AI and cloud divisions over the next five years.

AI-related products account for 30 per cent of external customer revenue for the Cloud division, Alibaba said.

Excluding one-time items, Alibaba’s net income for the quarter dropped 99.7 per cent and adjusted EBITA decreased 84 per cent, which Alibaba attributed to the investment in its technology businesses as well as in quick commerce.

Alibaba reported revenue of 122.22 billion yuan ($18 billion) in its China e-commerce business, which includes the highly competitive quick commerce segment, exceeding estimates of 119.85 billion yuan.

Executives said they were confident the “unit economics for quick commerce will turn positive by the end of fiscal year ’27.”

Already, Alibaba said its quick commerce investments had helped to drive customer acquisition, enhance user engagement and had increased transactions and improved monetisation for e-commerce overall in the quarter.

Total revenue was 243.38 billion yuan for the quarter ended March 31, slightly missing an LSEG consensus estimate of 247.22 billion yuan.

(Reporting by Deborah Sophia in Bengaluru and Casey Hall in Shanghai; Editing by Keith Weir, Louise Heavens and Barbara Lewis)