Produced by Leida Finance | Text by Ding Yu | Edited by Meng Shuai

Alibaba, which recently divested Lingxi Huyu to recoup billions, has just released a Q2 financial report that falls short of expectations.

According to the report, Alibaba generated 268.953 billion yuan in revenue during the second quarter, marking a 9% year-on-year increase. However, net profit attributable to the parent company tumbled to just 10.537 billion yuan, a staggering year-on-year decline of approximately 32.6 billion yuan.

In terms of business segments, Alibaba's revenue growth in Q2 was primarily fueled by robust performances in "China's instant retail" and two AI-centric sectors. Notably, the company's AI-related product revenue has sustained triple-digit year-on-year growth for the 12th consecutive quarter.

The significant drop in Alibaba's net profit attributable to the parent company was mainly attributable to a slump in operating profit, diminished net gains from investment disposals, and a decrease in net gains from changes in the fair value of equity investments.

Notably, Alibaba's capital expenditures surged by 75% year-on-year to 67.7 billion yuan in Q2, with the bulk allocated to AI infrastructure.

Alibaba CEO Wu Yongming expressed optimism, stating that the return on investment (ROI) for AI computing Capex is highly predictable, with Capex investments anticipated to pay off within three years. Given the improving gross margins of AI-related products, the payback period is expected to shorten to 2.5 years or even two years in the future.

However, the capital markets reacted negatively to Alibaba's latest financial report. On the two trading days following its release, Alibaba's stock price plummeted by 2.54% and 8.54%, respectively. As of August 24, the company's stock price closed at HK$112.5 per share, with a total market capitalization of HK$2.16 trillion.

Q2 Revenue Surpasses Expectations, Driven by Food Delivery and AI

According to Alibaba's latest financial report released on August 20, the company generated 268.953 billion yuan in revenue during the second quarter of 2026, up 9% year-on-year, exceeding market expectations of 268.52 billion yuan.

Notably, Alibaba has revised its financial reporting structure, reorganizing its business into four segments: Alibaba E-Commerce Group, "AI Cloud and Computing Services," "AI Labs and Applications," and "All Others."

Alibaba stated that the strategic integration of certain businesses aims to foster synergies among its e-commerce platforms and bolster its full-stack AI capabilities.

Specifically, Alibaba consolidated its China E-Commerce Group, Alibaba International Digital Commerce Group, and Hema to form the Alibaba E-Commerce Group. It also merged its Cloud Intelligence Group with T-Head Semiconductor to create "AI Cloud and Computing Services."

Previously categorized under "All Others," the AI model lab, Qianwen 2C division, and Qianwen Office were integrated to form "AI Labs and Applications."

The new "All Others" segment primarily encompasses Alibaba Health, Orca Entertainment Group, AutoNavi, Lingxi Huyu, and other technology businesses.

Some media outlets believe that Alibaba's restructuring effectively showcases its AI business for investors, without mingling it with other business data.

In Q2, among Alibaba's four business segments, the Alibaba E-Commerce Group remained dominant, generating 205.862 billion yuan in revenue, up 4% year-on-year, accounting for 76.5% of total revenue.

China's e-commerce business was the primary contributor to the Alibaba E-Commerce Group, generating 110.9 billion yuan in revenue for the quarter, albeit representing an 8% year-on-year decrease. However, China's instant retail business emerged as the primary growth driver for the e-commerce group, with revenue surging by 45% year-on-year to 53.295 billion yuan.

According to Alibaba, the revenue from its China instant retail business includes income generated from real-time delivery services on Taobao Flash Sale, Hema, and Tmall Supermarket. The rapid revenue growth in this segment in Q2 was primarily driven by Hema and Taobao Flash Sale.

Among Alibaba's four business segments, the AI-related "AI Cloud and Computing Services" and "AI Labs and Applications" generated revenues of 48.437 billion yuan and 3.338 billion yuan, respectively, up 45% and 16% year-on-year.

The revenue growth of "AI Cloud and Computing Services" was mainly propelled by increased revenue from public cloud services, including the rising adoption of AI-related products.

Meanwhile, the "All Others" segment witnessed a 1% year-on-year increase in revenue to 28.803 billion yuan in Q2.

Alibaba CEO Wu Yongming stated, "Full-stack AI capabilities continue to drive sustained improvements in commercial returns. Notably, Alibaba Cloud's external commercial revenue accelerated to 45% growth, and AI-related product revenue has achieved triple-digit year-on-year growth for the 12th consecutive quarter."

Over 30 Billion Yuan Less in Single-Quarter Profit, "AI Labs and Applications" Become a "Money Drain"

According to Tianyancha, Alibaba went public in the U.S. and Hong Kong stock markets in 2014 and 2019, respectively. In Q2 of this year, while Alibaba managed to maintain its revenue performance, it faced significant profit pressure.

The financial report showed that Alibaba recorded a net profit attributable to the parent company of 10.537 billion yuan in Q2, down 76% year-on-year, with a staggering year-on-year "evaporation" of approximately 32.6 billion yuan in a single quarter.

Alibaba explained that this was mainly attributable to a decrease in operating profit, a reduction in net gains from investment disposals, and a decrease in net gains from changes in the fair value of equity investments.

Specifically, Alibaba's operating profit for the quarter was 15.161 billion yuan, down 57% year-on-year, primarily due to a decrease in adjusted EBITA, goodwill impairment charges, and provisions for the current year.

During the same period, the company's interest income and net investment gains nearly halved to 9.004 billion yuan, mainly due to a decrease in net gains from investment disposals and a decrease in net gains from changes in the fair value of equity investments.

In Q2 of this year, Alibaba's adjusted EBITA was 27.329 billion yuan, down 30% year-on-year, mainly due to investments in technology, partially offset by improvements in the operating performance of its cloud business and increased operational efficiency across multiple businesses.

The financial report showed that in Q2, the "AI Labs and Applications" segment alone recorded an adjusted EBITA loss of 13.861 billion yuan, up 330% year-on-year. In contrast, the "AI Cloud and Computing Services" segment achieved a 133% year-on-year increase in adjusted EBITA to 5.628 billion yuan during the same period.

Alibaba stated that the significant loss in the "AI Labs and Applications" segment was mainly due to increased investments in AI capabilities and rising inference costs associated with the Qianwen App.

The substantial profit growth in the "AI Cloud and Computing Services" segment was primarily driven by revenue growth and improved operational efficiency, partially offset by increased investments in customer growth and technological innovation.

During the same period, the adjusted EBITA of the Alibaba E-Commerce Group segment decreased slightly by 1% year-on-year to 39.749 billion yuan. Meanwhile, the adjusted EBITA of the "All Others" segment was a loss of 3.343 billion yuan, compared to a profit of 687 million yuan in the same period of 2025, mainly due to increased investments in the company's technology businesses.

Additionally, Alibaba recognized goodwill impairment charges of 4.458 billion yuan in Q2. The company stated that the impairment reflected goodwill impairments related to businesses in the "All Others" segment.

The provisions were made for a 550 million euro (approximately 4.3 billion yuan) fine imposed by the EU under the Digital Services Act, which Alibaba accrued for the current year.

Regarding Alibaba's performance in Q2, Xu Hong, the company's Chief Financial Officer, expressed optimism, stating, "This quarter, the group achieved strong revenue growth, with continuously improving profit margins in its core businesses. Notably, the cloud segment's revenue continued to accelerate, and high-quality earnings and operating leverage improved the EBITA margin to 12%. Instant retail maintained its market share while continuously optimizing efficiency, resulting in stable overall e-commerce profits."

Single-Quarter Capital Expenditures Reach 67.7 Billion Yuan, Will AI Computing Capex Investments Pay Back in Three Years?

In today's rapidly evolving AI landscape, Alibaba, which originated as an e-commerce company, is increasingly focusing its resources and efforts on AI-related businesses.

This applies even to its e-commerce business. During the Q2 earnings call on August 20, Jiang Fan, CEO of Alibaba's E-Commerce Group, stated that Alibaba's overall e-commerce segment has largely completed its initial strategic layout over the past few years. Going forward, the company hopes to leverage its strengths in supply collaboration and AI technology to unlock greater growth potential for each business in the AI era while achieving a more diversified revenue and profit structure and promoting more stable development of the overall segment.

Previously, Alibaba CEO Wu Yongming had revealed that, looking ahead to the next five years, Alibaba's AI infrastructure investments would far exceed 380 billion yuan.

The financial report showed that Alibaba's capital expenditures reached 67.7 billion yuan in Q2 of this year, up 75% year-on-year, with sustained investments in AI infrastructure to meet growing customer demand.

Alibaba also pointed out that the significant year-on-year increase in capital expenditures was driven by multiple factors, including procurement cycle fluctuations, increased CPU computing power driven by the expected continued adoption of AI agents by customers, and rising prices of various chip components.

During the earnings call, Wu Yongming emphasized that the 67.7 billion yuan in capital expenditures in Q2 was indeed high, but due to hardware delivery cycles, which are not evenly distributed each quarter, the figure primarily reflects fluctuations in equipment delivery. The company's capital expenditures for the fiscal year should not be simply calculated by multiplying 67.7 billion yuan by four.

Wu Yongming also provided a clear "payback timeline": The ROI for AI computing Capex investments is highly certain, with Capex investments expected to pay back within three years.

To implement its "full-stack AI strategy," Alibaba is not only acting as a "shovel seller" but also personally "prospecting for gold," which aligns with the company's two newly established segments: "AI Cloud and Computing Services" and "AI Labs and Applications."

It is reported that T-Head Semiconductor's latest-generation Zhenwu M890 AI processor has been successfully deployed at scale, serving over 650 external customers across more than 20 industries, including autonomous driving, finance, and the internet.

Wu Yongming revealed that T-Head Semiconductor's second-generation domestic chip is expected to begin tape-out and production in the second half of this year and will be fully capable of supporting large-scale model training.

According to Omdia's "China AI Cloud Market Share 2025" report, the total size of China's AI cloud market reached 56.7 billion yuan in 2025. Among them, Alibaba Cloud ranked first in both the AI IaaS and MaaS-MPS submarkets, with its total share increasing from 35.8% in the first half of the year to 38.1%, maintaining its overall lead and surpassing the combined share of the second to fourth-ranked companies.

The Omdia report pointed out that as of March 2026, the number of customers on Alibaba Cloud's BaiLian platform had increased eightfold year-on-year. Alibaba's MaaS and application services' annualized recurring revenue (ARR) is expected to exceed 10 billion yuan in the June quarter and surpass 30 billion yuan by the end of the year.

According to Wu Yongming, Alibaba's AI-related product ARR exceeded 49.5 billion yuan in the current quarter, accounting for 35% of Alibaba Cloud's external commercial revenue. ARR is expected to approach 10 billion USD next quarter.

In August, reports indicated that Yuezhi Anmian had reached a computing power agreement with Alibaba, gaining access to a computing cluster composed of approximately 20,000 NVIDIA chips, representing a significant portion of the total computing power for its Kimi series models.

Meanwhile, Alibaba launched Qianwen 3.8-Max, with a total of 2.4 trillion parameters and 95 billion activated parameters, making it the largest and most capable model in the Qianwen family to date. It is also the first time a Max-level model from the Qianwen family has been open-sourced.

Benchmark tests showed that Qianwen 3.8-Max performed comparably to Anthropic Fable5 in multiple metrics for programming agents and general agents, surpassing it in some metrics.

As Alibaba continues to invest in the AI field, when can the company expect its profits to turn around? Leida Finance will continue to monitor the situation.