The revenue of Alibaba's AI Cloud and Compute Services unit is expected to grow by more than 50% year-on-year in the third quarter of this year. The unit combines the Chinese company's cloud services and its T-Head chip development unit. In the June quarter, its revenue reached nearly 7.1 billion USD.
“The most important additional message in our opinion is that the growth of the cloud business has not yet peaked“, Nomura analysts said in a research note cited by the South China Morning Post. Jefferies expects growth to accelerate to over 50% in the September quarter, with the momentum continuing through the next two quarters to March 2027.
Investments in AI Remain the Main Expenditure
Alibaba is in the middle of a three-year program to invest at least 380 billion yuan in cloud infrastructure and artificial intelligence. The funds are intended for data centers, computing capacity, chips and model development.
The company's capital expenditures increased by 75% year-on-year to 67.7 billion yuan in the June quarter. This weighed on the overall financial result and contributed to a 75% drop in quarterly profit to 10.5 billion yuan. At the same time, total revenue grew 9% to nearly 269 billion yuan.
Alibaba CEO Eddie Wu said that investments in computing infrastructure can reach profitability in three years, and with higher gross margins, the period can be shortened to two years. The company expects greater utilization of infrastructure and a higher share of AI services to improve financial results.