Detailed narrative
AI and Cloud Commercialization Momentum
Alibaba Cloud's external revenue growth accelerated to 45% year-over-year, reaching a 22-quarter high, with adjusted EBITDA margin expanding to 11.6%. This acceleration was broad-based, driven by compute, storage, model-as-a-service (MaaS), and AI applications. AI-related products, which generate significantly higher gross margins, saw their annual revenue run rate exceed RMB 49.5 billion (USD 7.3 billion) and accounted for 35% of external cloud revenue, maintaining triple-digit growth for 12 consecutive quarters. The company expects continued growth acceleration and margin expansion in the coming quarters⏳.
Full-Stack AI Capabilities and Proprietary Chips
Alibaba is strengthening its full-stack AI capabilities, including proprietary T-Head chips and foundation models. The Zhenwu M890 AI processor, T-Head's next-generation chip, recently launched at commercial scale on Alibaba Cloud, serving over 650 customers. The company expects supply to ramp up in the second half of the year to meet strong demand. Alibaba Cloud has also reduced the delivery time for hyperscale AI data centers to 100 days. The Qwen model series has been downloaded over 3 billion times globally, fostering a thriving open-source ecosystem that drives demand for cloud computing services.
E-commerce Business Realignment and Strategy
Alibaba has realigned its e-commerce business into four core areas: China e-commerce, China quick commerce, international e-commerce, and global wholesale. The strategy for China e-commerce focuses on strengthening core supply capabilities, supporting original merchants, and leveraging AI to enhance shopping experiences and operational efficiency. International e-commerce aims for improved profitability and transaction volume growth despite geopolitical challenges🌐, while B2B platforms are leveraging AI agents like Accio Work to transform cross-border trade.
Quick Commerce Performance and Long-Term Vision
The quick commerce business grew its scale by 45%, with unit economics substantially improving and losses significantly narrowing quarter-over-quarter. The company plans to accelerate the integration of Freshippo and Tmall supermarket to develop non-food categories, expecting their transaction volume to surpass food categories within the next fiscal year. Quick commerce is projected to achieve overall profitability in FY29 and contribute 30% of the platform's total GMV in the long term, becoming a key growth driver.
CapEx for AI Infrastructure and ROIC Outlook
CapEx for the quarter was RMB 67.7 billion, a significant increase driven by procurement cycles, increased CPU compute capacity for AI agents, and higher chip component pricing. The company's 3-year capital investment plan of RMB 380 billion is on track, with RMB 190 billion spent to date. Alibaba expects a 3-year payback period for AI-related CapEx, potentially shortening to 2-2.5 years with improving gross margins and proprietary chip substitution, leading to positive free cash flow post-breakeven.
Strategic Importance of T-Head Chips
Alibaba views its proprietary T-Head chips as a core competitive strength. Over 500,000 first-generation T-Head chips have been manufactured. The second generation is under development for H2, designed with GPU architecture to support both training and inference workloads, capable of direct replacement for existing chips. The company believes T-Head chips are #1 among domestic Chinese chips for performance and that Alibaba Cloud's market share provides a strong channel for distribution, ensuring long-term commercial value.