Alibaba released its financial results for the fourth quarter of fiscal 2026 (January–March 2026): total revenue reached 243.38 billion yuan, representing a year-on-year increase of 3%. Revenue of China E-commerce Group stood at 122.22 billion yuan, up 6% year-on-year, while profits declined notably year-over-year, mainly dragged by hefty subsidies for food delivery services. International Digital Commerce Group posted revenue of 35.429 billion yuan, a 6% year-on-year rise, with losses narrowing sharply. Alibaba Cloud recorded revenue of 41.626 billion yuan, surging 38% year-on-year. Other businesses remained loss-making.
Alibaba Cloud Accelerates Expansion: AI Finally Turns Profits
Undoubtedly, Alibaba Cloud was the highlight of the quarter’s earnings report.
Financial data shows Alibaba Cloud’s revenue hit 416.3 billion yuan, growing 38% year-on-year. Compared with the top three North American cloud vendors, Alibaba Cloud’s 38% growth rate ranks at an upper-middle level: notably outpacing Amazon AWS (28%), nearly on par with Microsoft Azure (40%), yet still lagging behind Google Cloud’s robust growth of 63%.
Its external commercial revenue rose 40% year-on-year.
Revenue from AI-related products reached 8.971 billion yuan, posting double-digit year-on-year growth for 11 consecutive quarters and accounting for over 30% of Alibaba Cloud’s external revenue. Based on calculation, the cloud business generated 30 billion yuan in external revenue this quarter.
This marks a pivotal shift. Over the past few years, Alibaba has continuously emphasized the capabilities of its Qwen large model, open-source ecosystem, parameter scale and Agent capabilities. For the first time, however, the company has explicitly disclosed the scale of its AI commercial revenue.
It means AI has truly started generating tangible profits.
Behind the 35.8 Billion ARR: Alibaba’s AI Commercialization Enters Monetization Phase
Another noteworthy figure from the earnings call: Alibaba revealed for the first time that annual recurring revenue (ARR) from AI is set to reach 358.84 billion yuan, extrapolated from Q4 fiscal 2026 results.
Many may overlook this metric, yet in the SaaS and cloud industries, ARR typically represents recurring revenue backed by sustained paid subscriptions and stable customer renewals.
In other words, this is not one-off project income; instead, enterprise clients are committing to long-term, recurring payments for AI services. The maiden disclosure of ARR at this stage is widely viewed by the market as a key signal that Alibaba’s AI commercialization has officially entered a large-scale monetization phase.
Wu Yongming, CEO of Alibaba Group, stated clearly during the earnings call that Alibaba’s end-to-end AI technology investment has officially moved beyond the initial incubation stage and entered a cycle of positive large-scale commercial returns. Alibaba’s AI revenue has formed a three-tier structure: computing power services, Model-as-a-Service (MaaS), and AI-native industry solutions.
Wu also projected that AI-related product revenue will account for more than 50% of Alibaba Cloud’s external commercial revenue within the next year.
Why Is Alibaba Running Short on Cash Even as AI Grows More Profitable?
This stands out as the most paradoxical aspect of the quarterly earnings.
On one hand: AI revenue is soaring, cloud business growth is picking up pace, and demand for MaaS is booming.
On the other hand: the company posted an operating loss of 848 million yuan, compared with an operating profit of 28.465 billion yuan in the same period of 2025. Free cash flow turned negative: registering a net inflow of 11.35 billion yuan as of December 31, 2025, it shifted to a net outflow of 17.3 billion yuan as of March 31, 2026, putting short-term profitability under pressure.
What lies behind this contradiction?
First, massive investment in technology businesses, primarily AI, is the dominant factor. This includes continuous training of the Qwen large model, R&D of self-developed AI chips via Pingtouge, expansion of AI cloud infrastructure such as data centers and servers, as well as user acquisition and promotion for consumer-facing applications like the Qwen app. Such spending is long-term and strategic in nature.
In addition, a temporary mismatch in revenue structure adds to the pressure. At present, most AI revenue comes from underlying computing power leasing with relatively low gross margins. Though high-margin Model-as-a-Service (MaaS) business is growing rapidly, its overall proportion remains limited. Alibaba Cloud’s adjusted diluted pre-tax profit margin stood at 9% this quarter; profitability is expected to improve markedly as high-margin businesses take up a larger share.
Alibaba’s management disclosed that no server computing card is left idle amid strong unmet customer demand. With rising contribution from high-margin MaaS revenue, the cloud business’s profit margin is poised for a notable improvement in the next one to two quarters.
This reflects a typical cycle in the AI industry: short-term growing pains including compressed profits and deteriorating cash flow driven by heavy capital expenditure in the early stage, followed by large-scale profitability in the long run fueled by rising AI API call volumes, growing enterprise subscriptions and improved infrastructure utilization.
Can Alibaba Afford Its Heavy AI Spending Spree?
Beyond short-term profits, Alibaba’s strategic layout for future AI infrastructure merits greater attention. During the earnings call, Alibaba indicated it will no longer rely solely on self-built data centers for future AI infrastructure expansion. Instead, it will adopt diversified models including leasing third-party computing power, joint construction of data centers, and exploring external sales of AI servers equipped with Pingtouge chips.
This signals a profound transformation in Alibaba’s positioning. It aims to evolve beyond merely a large model developer into an end-to-end AI infrastructure platform covering chips, computing power, large models and cloud services. Coupled with its ambitious target of expanding AI infrastructure scale to roughly 10 times the 2022 level, the initiative goes far beyond ordinary business expansion and amounts to a full-scale infrastructure arms race. To meet surging AI demand, Alibaba stated its future capital expenditure will exceed the originally planned 380 billion yuan.
Addressing market concerns over massive AI investment, Xu Hong, CFO of Alibaba Group, noted that with a net cash position of over 59 billion US dollars (excluding long-term debt maturing in more than five years), the group will stay committed to seizing the critical strategic opportunity window over the next two years.
Nevertheless, amid rising storage prices and tight supply of computing power chips, Alibaba’s continuous ramp-up in AI infrastructure investment has substantially increased capital expenditure pressure. Coupled with the recent turn to negative free cash flow, the group faces tests in short-term liquidity and financial flexibility. Before AI business achieves full self-sustainability with high profits, such high-intensity investment strategy inevitably raises higher requirements for its cash reserves and financial soundness, making potential financial pressure worthy of sustained market attention.
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