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Ann Cao

Alibaba Group Holding is expected to further accelerate cloud growth, expand operating margins and achieve faster payback on artificial intelligence investments, analysts say, as the Chinese tech giant reaches the halfway mark of its massive 380 billion yuan (US$56 billion) AI infrastructure spending plan.
“The most important incremental message, in our view, is that cloud growth has not yet peaked,” Nomura analysts said in a research note on Friday.
The comment followed Alibaba’s Thursday report of a 45 per cent revenue increase in its cloud and AI businesses for the three months ended June, marking the fastest growth in 22 quarters.
“This accelerating growth is occurring alongside meaningful margin expansion rather than at the expense of profitability,” Nomura analysts wrote, highlighting that the AI cloud unit’s adjusted Ebita margin reached 11.6 per cent, up from about 7 per cent a year ago.
Jefferies expected revenue growth for Alibaba’s Cloud and Compute Services, the company’s new reporting segment covering its cloud business and T-Head chip arm, to accelerate beyond 50 per cent year on year in the September quarter, with momentum building further into the next two quarters through March 2027.
We believe Alibaba’s results have delivered positive developments around cloud growth as a bright spot
Goldman Sachs
For the first time, the company provided clear visibility to investors on payoffs from its AI capital expenditures (capex). During an earnings call on Thursday, group CEO Eddie Wu Yongming said its AI computing investments would break even within three years – or possibly two as gross margins rose.
Wu said the company had already spent 190 billion yuan in capex as of the end of June, part of its plan announced last year to commit 380 billion yuan to digital infrastructure over the next three years.
Following the call, Goldman Sachs analysts lifted the capex estimates for its financial years 2027 and 2028 to 210 billion yuan and 240 billion yuan, respectively, driven by strong AI demand and favourable return on invested capital (ROIC) that prompted elevated spending.
“We believe Alibaba’s results have delivered positive developments around cloud growth as a bright spot, higher certainty on ROIC despite capex uplift, and an inflection in earnings per share growth with improving quick commerce unit economics,” Goldman Sachs said.
Shares of Alibaba, which owns the South China Morning Post, fell 2.5 per cent to close at HK$123 in Hong Kong on Friday.
While its 67.7 billion yuan quarterly outlay eclipsed the 52.8 billion yuan spent by domestic peer Tencent Holdings, the figures underscore a divergence in scale compared with US hyperscalers.
Major American tech giants – Amazon.com, Microsoft, Alphabet and Meta Platforms – are collectively projected to spend around US$700 billion on capital expenditure in 2026, averaging US$44 billion per quarter per company.
One of Alibaba’s biggest financial concerns remains the increasing cash outflow under its aggressive spending plan. Free cash outflow in the June quarter more than doubled to 44.7 billion yuan year on year, as heavier investment in cloud infrastructure strained cash generation.
Analysts forecast that surging demand for compute and the deployment of proprietary AI chips would offset short-term cash flow pressures.
Wu also justified the spike in quarterly capex, citing procurement timing, additional central processing unit capacity to meet AI agent demand, and higher chip prices.
Wu offered a telling example of strong demand: Nvidia’s A100 cards purchased in 2020 and V100 cards purchased in 2018 were still running at full capacity in its data centres.
A central pillar of this return profile is Alibaba’s proprietary chipmaking arm, T-Head. Having shipped more than 500,000 units of its previous-generation chips cumulatively, Alibaba began commercialising T-Head’s latest Zhenwu M890 chips on its cloud in supernode form – designed to knit hundreds or thousands of chips together to act as one giant supercomputer – earlier this month.
Looking ahead, Wu said long-term revenue growth and margin expansion trends would be “exceptionally strong”, and as a result, the cloud unit was “highly confident” in its ability to achieve the goal of US$100 billion in external revenue by 2030.


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Aggressive spending strains cash, but Alibaba’s AI cloud growth points to strong long-term returns, analysts say


Aggressive spending strains cash, but Alibaba’s AI cloud growth points to strong long-term returns, analysts say.


Alibaba signals faster AI payoff, margin gains halfway through US$56 billion capex plan

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Aggressive spending strains cash, but Alibaba’s AI cloud growth points to strong long-term returns, analysts say

Aggressive spending strains cash, but Alibaba’s AI cloud growth points to strong long-term returns, analysts say