Alibaba: Profits Halved by Price War, Shares Soar

Alibaba's latest earnings report is a real mixed bag, isn't it? On one hand, they're absolutely smashing it in the cloud and AI space, but on the other, their core e-commerce business is feeling the squeeze from some pretty fierce competition. It's a classic tale of two halves, really.

Cloud and AI: Alibaba's Shining Stars

Let's start with the good news. Alibaba's Cloud Intelligence division is booming! They just reported a revenue of 247.80 billion yuan (that's about £27.5 billion) for the quarter ending September 30th, which handily beat analyst expectations. A huge chunk of that, 39.8 billion yuan, came directly from their cloud services, showing a solid acceleration from previous quarters. This really highlights how crucial cloud infrastructure is becoming, not just for big tech but for businesses everywhere. We're seeing similar trends globally, with companies like Google and Meta pouring billions into AI development, as we discussed in Google and Meta in £multi-billion talks.

And it's not just cloud, it's AI that's really driving this growth. Alibaba's AI-related products have seen triple-digit growth for nine quarters in a row. Their Qwen AI app, which is essentially their answer to ChatGPT, racked up over 10 million downloads in its first week alone. That's a massive uptake and shows just how hungry people are for these kinds of tools. It seems everyone's trying to get in on the AI action, from Jony Ive & Sam Altman to countless startups.

Alibaba isn't shy about investing either. Their CEO, Eddie Wu Yongming, mentioned they're in an "investment phase" to build long-term strategic value in AI. Their CFO, Toby Xu, added that they've ploughed around 120 billion yuan into AI and cloud infrastructure in the last year. These sorts of investments are huge indicators of where they see the future going. In fact, research firm Omdia noted that Alibaba Cloud held a whopping 35.8% of China's AI cloud market in the first half of 2025, making them the top dog among domestic providers^ Omdia.

The E-commerce Headache

Now, for the slightly less rosy picture. While the revenue figures look great, Alibaba's net income dropped by a staggering 52% to 21 billion yuan. That's a pretty big hit, and it all boils down to aggressive spending. They're pouring cash into ultra-fast delivery services, trying to win the brutal price war against rivals like Meituan and JD.com. It's a tough market out there, and that kind of competition really eats into profits.

Their China e-commerce division did see a 16% revenue increase, partly thanks to a government appliance trade-in programme which is actually due to end soon. So, it'll be interesting to see if that growth can be sustained once that boost is gone.

What Does This Mean for Alibaba?

So, what's the takeaway? Alibaba is clearly betting big on AI and cloud computing, and it seems to be paying off in terms of revenue growth in those areas. They're positioning themselves as a major player in the global AI race, something we're seeing across the board with Big Tech pouring billions into AI darling Anthropic.

However, they're facing significant challenges in their traditional e-commerce business. This aggressive investment strategy is squeezing their profits in the short term. The question is, can their burgeoning AI and cloud divisions eventually offset these costs and lead to stronger overall profitability? It's a high-stakes game, and only time will tell if their gamble will truly pay off. Investors, for now, seem cautiously optimistic, with shares seeing a bump after the earnings release.