Alibaba disclosed that the unit housing its Qwen model labs and consumer applications lost RMB13.86 billion (US$2.04 billion) in adjusted EBITA during the quarter ended June 30, 2026. That adjusted EBITA loss was about 2.5 times the RMB5.63 billion in adjusted EBITA earned by its AI Cloud and Compute Services segment. The new segment split puts a price on the model-building operation for the first time. Until this quarter, those businesses sat within the broader All Others segment.

AI Labs and Applications, which includes the model labs, Qwen consumer business and QwenWork, generated RMB3.34 billion in quarterly revenue, up 16% from RMB2.88 billion a year earlier. Its adjusted EBITA loss more than quadrupled from RMB3.22 billion a year earlier to RMB13.86 billion in the June quarter. Alibaba attributed the widening loss to investment in AI capabilities and higher Qwen app inference costs. CEO Eddie Wu said, "The current monetization model for large language models through API calls is just a short-term transitional approach, certainly not the ultimate business model." Cloud revenue increased 45% to RMB48.44 billion from RMB33.42 billion, while adjusted EBITA rose 133% from RMB2.42 billion. Its margin reached about 11.6%, up from 7.2% a year earlier.

What Changed

AI-generated summary, reviewed by an editor. More on our AI guidelines.

Group revenue rose 9% to RMB268.95 billion (US$39.64 billion) from RMB247.65 billion in the June 2025 quarter, narrowly above the RMB268.88 billion LSEG consensus. Net income fell 75% to RMB10.44 billion (US$1.54 billion) from RMB42.38 billion and missed an estimate of RMB26.98 billion. Income from operations dropped 57% to RMB15.16 billion from RMB34.99 billion, while adjusted EBITA fell 30% to RMB27.33 billion from RMB38.84 billion. U.S.-listed shares fell about 5% after the August 20 open, then recovered and closed regular New York trading roughly 1.3% higher.

Capital expenditure rose 75% to RMB67.68 billion (US$9.98 billion) from RMB38.68 billion in the year-earlier quarter, more than double the RMB29.22 billion forecast. Alibaba linked the increase to procurement timing, more CPU capacity and higher chip-component prices. Free cash flow was an outflow of RMB44.67 billion, compared with an RMB18.82 billion outflow a year earlier and an estimated RMB12.80 billion outflow. Alibaba held RMB474.51 billion in cash and other liquid investments as of June 30, 2026. China E-commerce revenue fell 8% to RMB110.90 billion from RMB120.87 billion, while China Quick Commerce revenue climbed 45% to RMB53.30 billion from RMB36.73 billion.

Alibaba E-commerce Group revenue rose 4% to RMB205.86 billion in the June quarter from RMB198.81 billion a year earlier, while adjusted EBITA slipped 1% to RMB39.75 billion from RMB39.99 billion.

Citi analysts wrote in an August 20 note that the new disclosure gives investors a clearer view of AI spending and product progress. They said the 75% capex increase and RMB44.7 billion free-cash-flow outflow could heighten concern about capital needs and investment returns. Citigroup analyst Alicia Yap pressed chairman Joe Tsai on the RMB67.7 billion in quarterly capital spending during the earnings call. Tsai said Alibaba's full-stack AI approach is an asset-heavy business model in which every monetization route requires compute centers. "CapEx must come first," he said. Based on current AI product gross margins, he said, Alibaba expects a three-year payback period on its AI capital spending, potentially shrinking to 2.5 years or less as gross margins improve and use of its own T-Head chips increases. Tsai said, "Even today, a V100 GPU purchased in 2018 is still running at full capacity."

Know someone who'd find this useful? ✉️ Email it to a friend in one click, or they can subscribe free here.

Every payback and run-rate figure Alibaba provided is its own. No outside party has tested its three-year payback claim, and the company gave no capital-spending forecast for coming quarters. Wu said the June figure should not be annualized because hardware deliveries are uneven.

Alibaba had spent RMB190 billion by June from a RMB380 billion three-year AI budget. Its model-as-a-service annual recurring revenue exceeded RMB16 billion in August, against a year-end target of RMB30 billion. "Compute demand will continue to outstrip supply," Wu said.

Frequently Asked Questions

How much did Alibaba's AI Labs unit lose in the June quarter?

The AI Labs and Applications segment posted an adjusted EBITA loss of RMB13.86 billion (US$2.04 billion) in the quarter ended June 30, 2026, against a RMB3.22 billion loss a year earlier. Alibaba attributed the widening loss to investment in AI capabilities and higher inference costs tied to the Qwen app.

Why is this the first time the figure has been visible?

Alibaba reorganized its segment reporting this quarter. The AI model labs, the Qwen consumer business and QwenWork were previously reported inside the broader All Others segment and were consolidated into a new AI Labs and Applications segment, which is now reported separately.

Is Alibaba's cloud business profitable?

The AI Cloud and Compute Services segment earned RMB5.63 billion in adjusted EBITA, up 133% from RMB2.42 billion a year earlier. Its revenue rose 45% to RMB48.44 billion and its margin reached about 11.6%, up from 7.2% a year earlier.

How much is Alibaba spending on AI infrastructure?

Capital expenditure reached RMB67.68 billion (US$9.98 billion) in the June quarter, up 75% year over year and more than double the RMB29.22 billion analysts had forecast. Alibaba had spent RMB190 billion by June from a RMB380 billion three-year AI budget.

When does Alibaba expect the spending to pay for itself?

Chairman Joe Tsai said on the earnings call that Alibaba expects a three-year payback period on its AI capital spending based on current AI product gross margins, potentially shrinking to 2.5 years or less as margins improve and use of its own T-Head chips increases. No outside party has tested that claim.

AI-generated summary, reviewed by an editor. More on our AI guidelines.

SpaceX Stock Falls 7% as Capital Spending Hits $18.4 Billion in Debut Quarter
On Tuesday, Elon Musk moved from rockets to mobile service and orbiting data centers on SpaceX’s first public earnings call. Executives described faster returns from equipment on the ground. SpaceX s
The Implicator
Zuckerberg Offers Wall Street a Cloud Answer for AI Spending
San Francisco | Thursday, May 28, 2026 Meta is no longer only buying compute for its own feeds, agents and ads machine. Zuckerberg told shareholders a cloud business is "definitely on the table" if
The Implicator
Meta Is Developing AI Cloud Plans as Shares Jump 9.3%
Meta Platforms is developing plans for a cloud infrastructure business to sell outside customers access to AI computing power and hosted models, Bloomberg reported Wednesday. Meta shares jumped 9.3% t
The Implicator
AI News

San Francisco

Editor-in-Chief and founder of Implicator.ai. Former ARD correspondent and senior broadcast journalist with 10+ years covering tech. Writes daily briefings on policy and market developments. Based in San Francisco. E-mail: editor@implicator.ai