Alibaba's stock surged 6% in premarket trading as the Chinese tech giant's cloud computing division accelerated to 26% growth, powered by robust AI demand that's kept the unit on a triple-digit revenue streak for eight straight quarters. Despite missing overall revenue expectations with $34.6 billion versus $35.3 billion forecasted, investors are betting on Alibaba's AI transformation story.
Alibaba just delivered the kind of earnings surprise that sends tech investors scrambling to recalibrate their models. The Chinese giant's shares rocketed 6% in premarket trading after reporting cloud computing growth that blew past expectations, even as overall revenue came in light at 247.65 billion yuan ($34.6 billion) versus the 252.9 billion yuan analysts were expecting.
The real story lies in Alibaba's cloud unit transformation into an AI powerhouse. Revenue at the Cloud Intelligence Group surged 26% year-over-year to 33.4 billion yuan ($4.7 billion), a dramatic acceleration from the 18% growth rate posted last quarter. More tellingly, AI-related products have now maintained triple-digit year-over-year growth for eight consecutive quarters, according to CEO Eddie Wu's statement.
"Driven by robust AI demand, Cloud Intelligence Group experienced accelerated revenue growth, and AI-related product revenue is now a significant portion of revenue from external customers," Wu told investors. That admission reveals just how quickly Alibaba has pivoted from being primarily an e-commerce giant to positioning itself alongside Microsoft and Google in the AI infrastructure race.
The numbers paint a picture of a company walking a tightrope between growth investments and profitability. Net income jumped 78% to 43.11 billion yuan, crushing the 28.5 billion yuan estimate, but that surge came largely from gains on equity investments and the disposal of Turkish e-commerce firm Trendyol. Strip out those one-time items, and net income actually declined 18% as Alibaba pours cash into China's brutal instant commerce wars.
That investment strategy is already paying dividends in the cloud division, where adjusted EBITA margins expanded 26% year-over-year. Alibaba management made clear Friday that maintaining above-market growth rates takes priority over margin expansion in the near term – a signal that the AI arms race is far from over.
The competitive landscape in China's instant commerce space resembles a tech demolition derby. Food delivery giant Meituan just posted an as companies battle for supremacy in hour-long delivery promises. own quick commerce division generated 14.8 billion yuan ($2 billion) in revenue, up 12% year-over-year, but at the cost of a 21% drop in e-commerce division earnings.
