Alibaba's AI Spending Spree: Will It Pay Off?
Alibaba's AI spending has increased significantly in recent quarters, with the company investing RMB67.7 billion on capital expenditures in the June 2026 quarter, a 75% year-over-year increase. This investment is primarily focused on AI infrastructure, higher CPU-compute capacity, and rising chip-component prices.
The rapid spending has put pressure on Alibaba's cash generation, with free cash flow deepening to an outflow of RMB44.7 billion compared to RMB18.8 billion a year earlier. The decline is attributed primarily to higher cloud-infrastructure expenditure.
However, early AI monetization provides some offset, with AI Cloud and Compute Services revenues rising 45% to RMB48.4 billion, while adjusted EBITA jumped 133% to RMB5.6 billion. Alibaba expects AI-related CapEx to break even in roughly three years, with proprietary chips and higher-margin AI services providing potential avenues for improving returns.
Alibaba's competitors in the AI space are also investing heavily, with Microsoft scaling AI infrastructure aggressively and Alphabet accelerating its own investment in AI infrastructure.