Alibaba Group Holding is doubling down on artificial intelligence despite a sharp hit to its bottom line. The Chinese technology giant has launched a HK$80 billion ($10.2 billion) share placement to finance its expanding AI ambitions, just days after reporting a 75% year-on-year plunge in quarterly net profit.
The latest move highlights the enormous cost of competing in the global AI race, where companies are spending billions on chips, data centres, computing infrastructure and AI models.
Alibaba Raises $10.2 Billion
Alibaba is offering approximately 710 million new shares at HK$112.70 each, a 3.6% discount to its latest closing price.
The entire net proceeds from the fundraising will be directed toward developing full-stack AI capabilities, covering computing infrastructure, chips and AI model development. The transaction is reportedly the largest-ever primary follow-on offering by a Hong Kong-listed company.
The deal attracted strong investor demand, including interest from sovereign wealth funds, prompting Alibaba to increase the size of the offering.
Profit Falls 75%
The fundraising comes after a difficult earnings quarter.
Alibaba's net profit for the April-June 2026 quarter fell to approximately 10.5 billion yuan ($1.6 billion) from 43.1 billion yuan a year earlier — a decline of around 75%.
However, the decline does not mean Alibaba's underlying business suddenly collapsed. Revenue actually increased 9% to around $39.6 billion, while its cloud and AI business delivered particularly strong growth.
Alibaba Q1 FY27 Key Numbers
| Metric | Q1 FY27 |
|---|---|
| Net Profit | 10.5 billion yuan |
| YoY Profit Change | -75% |
| Revenue | $39.6 billion |
| Revenue Growth | +9% |
| AI Cloud & Compute Revenue | $7.1 billion |
| AI Cloud & Compute Growth | +45% |
| Capital Expenditure | $10 billion |
| Capex Growth | +75% |
Alibaba's own results show that cloud revenue growth reached its strongest level in 22 quarters, while AI-related revenue continued to grow at triple-digit rates.
AI Spending Is Eating Into Profits
The biggest reason for the profit decline is the extraordinary increase in capital expenditure.
Alibaba spent approximately 67.7 billion yuan, or nearly $10 billion, on capital expenditure during the quarter, up 75% from the previous year. Much of this investment is going toward AI computing infrastructure and capacity.
The company has previously committed to investing around 380 billion yuan ($56 billion) over three years in AI and cloud infrastructure.
CEO Eddie Wu has argued that the investments are necessary to build sufficient computing capacity to meet rapidly increasing AI demand.
Cloud Business Shows Why Alibaba Is Investing
While the spending is hurting near-term profitability, Alibaba's AI and cloud operations are growing rapidly.
AI Cloud and Compute Services revenue increased 45% year-on-year to around $7.1 billion. Alibaba said AI-related revenue has recorded triple-digit growth for the 12th consecutive quarter.
The cloud segment's adjusted EBITA also increased 133% to approximately $830 million, indicating that the company's investment is beginning to generate stronger economics within its cloud business.
Why Raise Money Now?
The $10.2 billion fundraising gives Alibaba additional financial firepower to continue its AI expansion without relying entirely on operating cash flow.
The company is effectively making a long-term bet: accept lower profits today in exchange for a stronger position in the future AI economy.
The strategy carries significant risks. AI infrastructure is extremely capital intensive, competition in China is intense, and there is no guarantee that today's enormous spending will generate sufficient returns.
At the same time, slowing consumer demand in China's e-commerce market adds another challenge to Alibaba's traditional business.
Bottom Line
Alibaba's latest move demonstrates the scale of the global AI investment race.
The company is raising $10.2 billion, even as quarterly profit has plunged 75%. But revenue is growing, cloud and AI sales are accelerating, and management believes the current infrastructure spending will position Alibaba for much larger AI opportunities in the coming years.
The key question for investors is no longer simply how much Alibaba is spending on AI, but whether that spending can eventually translate into sustainable revenue, cash flow and profitability.
