By Harshita Mary Varghese and Laurie Chen
Aug 20 (Reuters) - China's Alibaba reported a 9% rise in quarterly revenue on Thursday, as strong AI demand fueled growth in its cloud business, but missed estimates for adjusted profit due to heavy capital expenditure.
As businesses deploy AI, demand for the cloud computing power needed to train and run those systems has surged, benefiting China's largest technology companies.
Alibaba, the country's biggest cloud services provider, has stepped up investment
in AI infrastructure, proprietary models and applications, positioning the technology as a key growth driver for its cloud and consumer businesses.
The company's AI cloud and compute services revenue rose 45% to 48.44 billion yuan ($7.21 billion) in the quarter.
Alibaba's adjusted earnings per American Depositary Share of 8.52 yuan missed estimates of 10.53 yuan and its U.S.-listed shares fell 2.6% in premarket trading.
"We delivered a strong quarter, driven by the improving commercialization of our full stack AI capabilities,” Alibaba CEO Eddie Wu said in a statement.
Alibaba's capital expenditure rose 75% to 67.68 billion yuan in the quarter ended June 30, as it continued to invest in AI infrastructure.
The company reported revenue of 268.95 billion yuan in the first quarter, compared with an average analyst estimate of 268.88 billion yuan, data compiled by LSEG showed. Its net income for the quarter tumbled 75%.
CHINESE AI RACE
Alibaba is locked in a battle with other Chinese tech giants and startups to release more capable open-weight frontier AI models at a fraction of the cost of proprietary U.S. offerings like Anthropic's Claude, highlighting the rapid pace of advancement of Chinese AI models and their shorter release cycles.
But as competition heats up, firms are pivoting towards offering better agentic and coding capabilities to capture more of China's lucrative domestic enterprise market.
"As synergies across our core businesses deepen and AI monetization ramps up, we have greater strategic and financial flexibility to make disciplined and sustained investments in full-stack AI capabilities," Toby Xu, Alibaba's chief financial officer, said in a statement.
Alibaba is also a major investor in other Chinese frontier AI startups including Moonshot, and supplies it with cloud computing infrastructure.
Earlier this year Alibaba split its AI businesses from its cloud computing arm and tasked Wu with leading the "Alibaba Token Hub" group, as it races to make its AI segment profitable.
Alibaba's fintech affiliate Ant Group reported 1% year-on-year growth in quarterly profit, Reuters calculations showed, as it has attempted to pivot towards agentic AI commerce, AI digital health applications and embodied AI models in recent years.
($1 = 6.7218 Chinese yuan renminbi)
(Reporting by Harshita Mary Varghese in Bengaluru and Laurie Chen in Beijing; Editing by Maju Samuel and Alexander Smith )
