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Alibaba net profit drops 75% as AI spending ramps up
AI infrastructure capex rose 75% to 67.68 billion yuan in the June quarter, while AI cloud and compute services revenue increased 45% to 48.44 billion yuan.
Alibaba reported a 75% drop in quarterly net profit as the company ramped up AI-related capital expenditure, Reuters reported. The tech giant said the spending is aimed at expanding the compute capacity needed for enterprise cloud and AI model services.
Alibaba posted a 9% revenue increase for April to June, supported by stronger demand for cloud computing power used to train and run enterprise AI systems. Its AI cloud and compute services revenue rose 45% to 48.44 billion yuan in the June quarter, driven by growth in its AI model-as-a-service business, which surpassed 16 billion yuan in annual recurring revenue.
The company increased capital expenditure by 75% to 67.68 billion yuan in the June quarter. CEO Eddie Wu said Alibaba expects to break even on AI-related capex within the next three years, based on current average gross margins, and pointed to plans to deploy proprietary chips in its data centers and replace commercially procured chips.
Alibaba’s adjusted earnings per American Depositary Share came in at 8.52 yuan, which missed an average estimate of 10.53 yuan. Reuters also noted Alibaba’s U.S.-listed shares fell 4.6% in early trading.