Alibaba Stock Pops as AI-Fueled Cloud Boom Offsets E-Commerce Squeeze

Alibaba’s latest earnings show the Chinese tech giant riding the AI wave even as its bread-and-butter e-commerce business feels the squeeze of China’s bruising instant-delivery wars. Investors cheered anyway, sending shares up as much as 12% in US trading Friday.

The big headline: Alibaba’s cloud unit revenue surged 26% year-on-year to 33.4 billion yuan, a sharp pickup from 18% growth the previous quarter. AI was the rocket fuel — CEO Eddie Wu said demand for AI services is now a “significant portion” of cloud sales. For the eighth quarter in a row, AI-related product revenue grew at triple-digit rates.

Reports that Alibaba is developing its own AI chip — potentially putting it in direct competition with Nvidia and Huawei — added to the excitement. Management says the strategy isn’t about chasing fat margins yet, but about keeping cloud growth well ahead of the market.

Adjusted EBITA for the cloud business jumped 26%, showing the division’s profitability is climbing alongside revenue.

Things looked less rosy in Alibaba’s core commerce arm, which still makes up more than half the company’s sales. Revenue there grew 10% to 19.6 billion yuan, helped by a 10% rise in fees merchants pay for marketing and services.

But profits took a hit — adjusted earnings in the division fell 21% year-on-year. The culprit? Alibaba’s massive investments in “instant commerce,” or one-hour delivery via its Taobao app. The company says the segment could add 1 trillion yuan in gross merchandise value over the next three years, but for now it’s a costly arms race with JD.com and Meituan.

Alibaba’s quick-commerce unit still notched 14.8 billion yuan in revenue, up 12% year-on-year. Rival Meituan, meanwhile, reported a staggering 89% drop in quarterly profit as the subsidy-fueled battle eats into margins across the industry.

Overall revenue rose just 2% year-on-year to 247.65 billion yuan ($34.6 billion), missing analyst expectations of 252.9 billion yuan. But net income smashed forecasts, soaring 78% to 43.1 billion yuan — thanks largely to investment gains and the sale of Turkish e-commerce firm Trendyol. Strip out those one-offs, and profit would have fallen 18%.

Still, Alibaba stock is up around 40% this year, reflecting investor faith in its AI-and-cloud pivot. International commerce is also a bright spot, with AliExpress and other platforms posting a 19% revenue jump as losses narrowed.

Alibaba is juggling two huge bets:

• AI + Cloud, where it’s racing to cement itself as China’s answer to Microsoft Azure and Google Cloud.
• Instant commerce, a money-burning fight that could reshape how Chinese consumers shop.

Investors seem willing to tolerate the pain in retail as long as AI-fueled cloud growth keeps delivering.

With input from Bloomberg, Reuters, CNBC, and Business Wire.