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China's Alibaba reported Thursday that net profit fell 66% year over year in the October-December quarter, while the tech giant highlighted accelerating revenue from artificial intelligence products as its most promising growth driver.
Net profit for the quarter was 15.6 billion yuan ($2.2 billion), down from 46.4 billion yuan a year earlier. Total revenue reached 284.8 billion yuan, just below analyst forecasts of 290.7 billion yuan. Alibaba's U.S.-listed shares fell about 5% in premarket trading after the announcement.
The company said the net profit decline was mainly due to a 74% year-over-year drop in operational income, weighed down by heavy spending on quick commerce, user experience improvements, and technology infrastructure.
Rivals JD.com and Meituan have been locked in a price war, especially in food delivery, that has squeezed margins across the sector.
Despite the earnings miss, Alibaba's cloud business was a clear bright spot. Revenue from the Cloud Intelligence Group rose 36% year-over-year to 43.3 billion yuan, with AI-related product revenue posting triple-digit growth for the 10th consecutive quarter.
"AI is and will continue to be one of our primary growth engines," CEO Eddie Wu said in a statement. "Our Cloud Intelligence Group's revenue is up 36% with AI-related product revenue delivering triple-digit growth for the tenth consecutive quarter."
Alibaba is racing with other Chinese tech companies to develop AI agents and tools capable of carrying out real-life tasks, such as booking flights or sending emails.
This week, the company announced Wukong, an AI agent for businesses now in beta testing. Alibaba's open-source Qwen AI models have gained a global following among developers, and Wu said Qwen's consumer interface has surpassed 300 million monthly active users.
To sharpen its focus on profitability, Alibaba is consolidating its AI development and services divisions under a new structure called the Alibaba Token Hub, bringing previously dispersed departments under unified leadership. CEO Eddie Wu will oversee the reorganized unit directly.
Analysts at Citi described the results as "softer" than expected, with revenue, adjusted net profit, and adjusted operational income all falling short of forecasts. However, they flagged the cloud acceleration as a positive signal.
Third Bridge senior analyst Eric Shen projected that Alibaba Cloud's revenue growth in 2026 could reach 35% to 45%, driven by AI cloud services and market share gains, a figure comparable to those of U.S. cloud giants Microsoft and Google.
There are early signs of monetization momentum. Alibaba's cloud unit announced plans to raise prices for its T-head AI computing chips by 5% to 34%, while storage service prices are set to increase by 30%, according to The Wall Street Journal.
Alibaba has pledged tens of billions of dollars in AI and cloud infrastructure investments as it works to reposition itself from an e-commerce giant to a full AI leader.
The company has also lost several key AI researchers in recent months, increasing pressure on management to show that its reorganization and spending commitments can deliver results in the coming quarters.
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