Alibaba's fiscal first-quarter revenue rose 9% year over year to 268.95 billion yuan ($40 billion), narrowly beating the 268.88 billion yuan analyst estimate, while net income fell 75% to 10.44 billion yuan ($1.6 billion).

Alibaba Cloud's external revenue growth accelerated to 45%, and AI-related product revenue logged its 12th straight quarter of triple-digit growth, reaching 12.38 billion yuan ($1.82 billion).

Capital expenditure jumped 75% to 67.7 billion yuan ($10 billion), pushing free cash flow to a $6.6 billion outflow; U.S.-listed shares fell as much as 5% before paring the drop to roughly 3.5%.

Fastest growth in three years, driven by cloud and AI

Chinese tech titan Alibaba reported fiscal first-quarter revenue of 268.95 billion yuan, roughly $40 billion, on Thursday, up 9% year over year and slightly ahead of the 268.88 billion yuan analysts expected. Alibaba's fiscal year ends in March, so the quarter covers April through June. It is the fastest quarterly growth rate the company has posted in roughly three years, and almost all of it traces back to one business line: cloud and AI.

The cloud division is where the growth is coming from. Alibaba Cloud, China's largest cloud provider by market share, saw external revenue growth accelerate to 45%, and AI-related product revenue hit 12.38 billion yuan ($1.82 billion)—its 12th consecutive quarter of triple-digit year-over-year growth, a streak that began in late 2023 as the generative AI boom took hold. CEO Eddie Wu attributed the quarter's strength to improving commercialization of the company's full-stack AI push, according to Alibaba's earnings statement.

That push isn't cheap. Capital expenditure jumped 75% to 67.7 billion yuan ($10 billion), which Alibaba tied mainly to climbing chip prices and expanding compute capacity as AI demand outpaces supply. The outlay tracks a plan Alibaba unveiled in February 2025 to invest at least 380 billion yuan, roughly $53 billion, over three years in cloud and AI infrastructure, and it lands as an industry-wide shortage of AI accelerators and memory pushes component costs higher for builders everywhere. Free cash flow swung to an outflow of more than $6.6 billion for the quarter, according to Bloomberg. U.S. hyperscalers such as Amazon, Microsoft, and Alphabet have struck a similar trade-off, lifting their own capital spending to expand AI data-center capacity even as it pressures cash generation.

Wall Street's reaction was immediate. Alibaba's U.S.-listed shares fell around 5% shortly after the opening bell, before recovering by midday, as the profit plunge outweighed the revenue beat.

The AI monetization play

Alibaba's cloud numbers arrive as the company leans harder into distributing its Qwen models rather than just training them. Earlier this month, Alibaba gave away Qwen 3.8-Max, its most capable model, as open weights for the first time at that scale. In April, it shut down the free tier of its Qwen Code coding agent.

The company is also expanding beyond China's borders. Apple is pairing its in-house model with Alibaba's Qwen to bring Apple Intelligence to Chinese iPhones, a deal that could make Apple the first foreign company allowed to run a proprietary AI model inside China—a market where generative AI services require regulatory approval and foreign AI firms generally reach users through local partners.

That distribution bet is already showing up in the numbers: Chinese open-weight models jumped from under 2% of tokens generated on OpenRouter in late 2024 to roughly 61% by mid-2026, even as Alibaba's quarterly profit shrinks by three-quarters. OpenRouter, an API routing service that sends developer requests across hundreds of models, has become a widely watched proxy for real-world AI usage. The question for coming quarters is whether that surging usage converts into paid cloud consumption fast enough to keep pace with the cost of the build-out—Alibaba has said AI demand currently outstrips its compute supply.