Alibaba reported 34% growth in its cloud unit for the September quarter, dragging total revenue up 5% to 247.8 billion yuan ($35 billion) despite a steep drop in profit to 20.99 billion yuan, according to the earnings report.

The spike in cloud came from its Qwen platform, which the company has shoved to the front of its AI campaign. But earnings took a hit as Alibaba dumped money into consumer discounts, new data centers, and AI development.

The company’s e-commerce sales inside China rose 16%, showing it’s still in the fight against JD.com and Meituan.

That division helped stabilize the overall numbers, even though the marketing bill more than doubled. Investors responded early, as Alibaba’s US-listed shares jumped over 2% in pre-market trading.

Eddie Wu dismisses AI bubble fears, ramps up investments

Eddie Wu, the CEO, told analysts on Tuesday that the company isn’t sweating over warnings of over-investment.

“Looking ahead to the next three years, we don’t really see much of an issue in terms of a so-called AI bubble,” Eddie said.

That view puts him at odds with his own chairman, Joe Tsai, who, back in March, flagged how companies like Amazon, Meta, and Microsoft were building more than demand justified. Those three have seen their shares take a beating lately as questions about AI returns grow louder.

But Eddie is going full throttle. He confirmed Alibaba will keep spending to “aggressively” build out infrastructure and models, including homegrown semiconductors, to dodge US chip bans. That effort is being led by T-Head, its in-house chip arm, which is now trying to compete with Huawei.

That’s not a cheap plan. Alibaba committed to 380 billion yuan over three years—way above Tencent’s recent $1.8 billion in AI-related capex. Even with global AI stocks cooling off, Chinese firms like Alibaba have avoided the worst of the damage because their spending isn’t as bloated… yet.

But Alibaba is now way out ahead of the pack. Eddie said the company is racing to keep up with demand, not just building for hype. “Our Alibaba Cloud server infrastructure is seriously lagging behind the growth rate of customer orders. Our backlog of orders continues to expand,” he said.

Qwen app surges as rivals build their own chatbots

Alibaba relaunched the Qwen mobile app earlier this month. The product drew 10 million users in just four days, making it one of the fastest AI rollouts in China. The app’s meant to evolve into a full AI agent that can complete tasks like shopping on Taobao, booking travel, handling education, and offering map tools.

This rollout lands in a crowded field. ByteDance’s Doubao has already hit 172 million monthly active users, while Tencent’s Yuanbao is piggybacking on WeChat and prepping to build an AI-layer into the app.

None of these apps, including Qwen, is making money directly, and there’s no sign that Chinese users want to pay for subscriptions.

Still, with OpenAI and Google banned in China, Alibaba is only competing with domestic firms. But the chip supply situation is tight.

Thanks to US restrictions, the most advanced Nvidia GPUs are off-limits. Local options are limited, but Alibaba and Huawei are working on it.

Meanwhile, the company is seeing signs of a rebound in local spending, especially in quick-commerce, the rapid delivery of food and goods. Executives said they want to grow gross merchandise value in quick-commerce to 1 trillion yuan within three years.

That consumer traffic helps feed Alibaba’s other platforms.

But keeping costs down while chasing growth in both cloud and consumer tech will be the main thing investors watch. Eddie’s bet is that AI pays off, if the infrastructure doesn’t collapse under the weight of demand first.

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