Alibaba's Cloud Growth Cannot Yet Offset Its Commerce and Cash Costs

Alibaba's 31% share-price decline in 2026 looks like a broad retreat from Chinese internet stocks, but the company's latest results show a sharper internal divide. Its cloud business is growing quickly, while core commerce and the cash cost of artificial intelligence investment remain meaningful constraints.

On October 26, 24/7 Wall St. reported Alibaba's U.S.-listed shares at $99.91, down 31% for the year. The KraneShares CSI China Internet ETF and PDD Holdings were each down about 32%, while JD.com was down 9% and the S&P 500 was up 12%. Those comparisons support the view that sector sentiment matters, but they do not show that Alibaba's businesses are standing still.

For the June 2026 quarter, Alibaba reported revenue of RMB268.95 billion, up 9% from a year earlier. AI Cloud and Compute Services revenue rose 45% to RMB48.44 billion, while AI-related product revenue reached RMB12.38 billion and posted triple-digit growth for a twelfth consecutive quarter. Segment adjusted EBITA increased 133% to RMB5.63 billion. Those figures provide the clearest evidence that cloud is becoming a larger and more profitable part of the group.

Commerce was less convincing. China e-commerce revenue fell 8%, and customer management revenue declined 7%. Alibaba said customer management revenue would have risen 1% on a like-for-like basis without the contra-revenue effect of a new business development program. China Quick Commerce revenue rose 45%, but that growth came alongside continued investment in user experience and technology.

The consolidated numbers show the cost of the transition. Reported operating income fell 57% to RMB15.16 billion, and net income declined 75% to RMB10.44 billion. Adjusted EBITA fell 30% to RMB27.33 billion. Free cash flow was an outflow of RMB44.67 billion, compared with an RMB18.82 billion outflow a year earlier, mainly because cloud infrastructure spending increased. Quarterly capital expenditure rose 75% to RMB67.68 billion.

Alibaba still had RMB474.51 billion of cash and other liquid investments at the end of June. That balance gives management room to fund AI infrastructure, but the spending has to translate into durable returns. The new AI Labs and Applications segment reported an adjusted EBITA loss of RMB13.86 billion, more than four times the RMB3.22 billion loss a year earlier, largely because of AI investment and Qwen app inference costs.

The investment question is therefore not simply whether Alibaba is cheap after falling with its peers. It is whether 45% cloud growth and improving cloud profitability can eventually outweigh slower commerce, heavy capital expenditure and rising application-layer losses. A sustained gap between Alibaba and the broader China internet index would be useful market evidence, but the stronger proof will come from cash flow and consolidated profit.