Alibaba doubles down on AI and cloud push

Alibaba Group used its December quarter 2025 earnings to underscore a strategic focus on two pillars: "AI + Cloud" and "AI + Consumption." Management described the company as entering a new phase of investment aimed at future growth, centered on artificial intelligence infrastructure and next‑generation commerce formats.

For the quarter, Alibaba reported total revenue of RMB 284.8 billion, up 2% year on year, or 9% on a like‑for‑like basis excluding divested businesses such as Sun Art and Intime. However, total adjusted EBITDA declined 45% and GAAP net income fell 66% to RMB 15.6 billion, reflecting heavy spending on consumption-related innovation and AI initiatives.

CEO Eddie Wu said Alibaba aims to surpass $100 billion in combined external cloud and AI revenue, including model‑as‑a‑service (MaaS), over the next five years. He argued that rising AI agent adoption will expand the addressable market for cloud and AI infrastructure by several multiples as token consumption increases across industries.

Within Alibaba’s Cloud Intelligence Group, revenue growth accelerated to 36% in the quarter, with external customer revenue up 35% compared with 29% in the prior quarter. AI‑related product revenue recorded triple‑digit year‑over‑year growth for the 10th consecutive quarter, and Cloud Intelligence Group adjusted EBITDA margin was described as relatively stable at 9%.

Alibaba Cloud’s cumulative external revenue through February of fiscal 2026 surpassed RMB 100 billion. Wu said the company expects MaaS to become the cloud unit’s largest revenue product, supported by a sixfold increase in token consumption on its Model Studio platform over the past three months.

To execute its AI strategy, Alibaba formed a new business group, Alibaba Token Hub (ATH). ATH consolidates Tongyi Lab, the MaaS line, the Qwen model unit, the Wukong enterprise agent unit, and an AI innovation team, with the aim of closer integration between models and applications in what management called an agent‑driven era.

Alibaba launched its latest large model, Qwen3.5‑Plus, during Chinese New Year, highlighting improvements in reasoning, coding, agentic capabilities and inference efficiency. Qwen’s consumer‑facing app has surpassed 300 million monthly active users and has been integrated into Taobao instant commerce, Alipay, Fliggy, Damai and Amap.

On the enterprise side, Alibaba recently introduced Wukong, described as an AI agent platform for upgrading workflows while maintaining data permissions and management processes. Qwen has become one of the most widely adopted open‑source model families globally, with more than 1 billion cumulative downloads on Hugging Face by the end of January, according to CFO Toby Xu.

Alibaba’s AI + Consumption push is most visible in its Quick Commerce business, which includes food delivery and other rapid‑fulfilment services. Revenue in this segment grew 56% year on year to RMB 20.8 billion in the quarter, supported by scaling efforts and sequential improvements in user experience and average order value.

China E‑commerce group revenue reached RMB 159.3 billion, up 6%, while customer management revenue rose 1%. Management said weaker transaction activity and the fading impact of software service fee changes contributed to slower growth. Quick Commerce nonetheless drove double‑digit growth in Taobao monthly active consumers and supported categories such as food, fresh produce and healthcare, as well as Freshippo and Tmall Supermarket.

Profitability in domestic e‑commerce was under pressure, with adjusted EBITDA down 43% to RMB 34.6 billion. Alibaba attributed this mainly to investments in Quick Commerce, user experience and technology, and cautioned that margins may remain volatile amid intense competition. The company reiterated a target of over RMB 1 trillion in Quick Commerce GMV by fiscal 2028, positive cash flow at that scale, and profitability for the business in fiscal 2029.

Alibaba also reported advances at its T‑Head chip unit. Its proprietary GPU chips have entered scaled mass production, with 470,000 AI chips shipped cumulatively as of February 2026. More than 60% of these chips serve external customers, and T‑Head now supports AI workloads for over 400 enterprise clients across industries.

Management said T‑Head’s annual revenue has reached the RMB 10 billion level and expects production capacity to expand through 2026 and 2027. While not ruling out a future IPO of the unit, the company said there is no definitive timetable.

Alibaba generated operating cash flow of RMB 36 billion and free cash flow of RMB 11.3 billion in the quarter, with the latter down RMB 27.7 billion year on year as the group reinvests in AI and Quick Commerce. As of December 31, 2025, Alibaba held $42.5 billion in net cash, or more than $60 billion when excluding debt maturing beyond five years.

Following the earnings release showing modest revenue growth and a steep profit decline, Alibaba’s U.S.‑listed shares traded lower, with one report citing a 7.3% intraday drop. Adjusted earnings before interest, taxes and amortization were down 57%, and adjusted earnings per share fell 67% to $0.13.

Looking ahead, management said it sees improving consumer sentiment entering the March quarter. Physical goods gross merchandise value and customer management revenue trends were described as having significantly recovered from the December quarter, and Alibaba expects e‑commerce EBITDA to improve accordingly while it continues substantial investment in AI and consumption initiatives.