Alibaba's AI Investments Bear Fruit: 322% Increase in Investment Profits Announced in Financial Results

Alibaba Group announced its annual financial results and fourth-quarter earnings for fiscal year 2026 (April 2025 to March 2026) on May 13, 2026. The standout development was the significant contribution of AI-related investments to the company’s earnings. Interest income and investment profits surged 322% year-over-year to 87.51 billion yuan (approximately 1.75 trillion yen), marking the highest level since 2022. This sharp increase was driven by the IPOs of several AI unicorn companies in which Alibaba had invested early, along with the growing demand for generative AI applications.

IPOs of AI Companies Bring Significant Gains

Among Alibaba’s AI startup investments, the most profitable were MiniMax and Zhipu AI. MiniMax went public in January 2026, with Alibaba holding approximately 13.66% of its shares at the time of its IPO. Zhipu AI also went public in January, with Alibaba owning about 6% of its shares. Furthermore, Alibaba holds approximately 36% of preferred shares in the unlisted Moonshot AI (known as “Yuezhi Anmian” in Chinese), and further capital gains are expected once the company goes public.

These companies are not just investment targets but also key clients of Alibaba Cloud. MiniMax procured computing resources worth approximately $58.4 million from Alibaba Cloud in the first quarter of 2025. Zhipu AI has also been advancing commercialization through Alibaba’s platform, while Moonshot AI is recognized as one of Alibaba Cloud’s flagship users. The widespread adoption of generative AI, which requires large-scale inference capabilities, has significantly boosted Alibaba Cloud’s revenues.

Cloud Business Drives Revenue Growth Despite Decline in Operating Income

Alibaba’s total revenue for the fourth quarter of fiscal year 2026 (January to March 2026) rose 3% year-over-year to 243.38 billion yuan. However, adjusted EBITA plummeted by 84% to 5.12 billion yuan due to aggressive investments in AI infrastructure.

Capital expenditures for the quarter amounted to 26.9 billion yuan, with most of the funds allocated to data center expansion and AI infrastructure. Selling expenses increased by 17.2 billion yuan year-over-year, driven by investments in the operations of the instant retail business “Flash Buy” and the promotion of its proprietary AI platform “Qwen.” Research and development costs for AI products and large language models reached 18.957 billion yuan.

Despite these expenses, Alibaba Cloud performed strongly. Quarterly cloud revenue grew 38% year-over-year to 41.626 billion yuan, with external commercialization revenue increasing by 40%, marking the highest growth rate in nine quarters. Adjusted EBITA for Alibaba Cloud rose 57% year-over-year to 3.796 billion yuan, showcasing robust profitability that far exceeded the group’s overall performance.

Remaining Challenges: AI Transformation in E-commerce and Instant Retail Competition

While Alibaba is beginning to reap the benefits of its AI investments, it still faces several challenges. AI companies in its portfolio tend to avoid relying exclusively on a single cloud vendor, exposing Alibaba Cloud to competition from rivals like Huawei Cloud. Additionally, Alibaba’s consumer-facing AI platform “Qwen” currently holds the “second place” position in the domestic market, but user numbers have declined following the Spring Festival campaign.

Furthermore, Alibaba’s instant retail business “Flash Buy” is set to clash with Meituan in the competitive instant retail market during the summer of 2026. Performance from June to August will likely determine the company’s competitive edge in this sector.

Alibaba’s e-commerce business is still in the midst of AI-driven transformation. Integrated tools like the Qwen shopping assistant and AI-powered virtual fitting rooms on platforms such as Taobao and Tmall face the challenge of balancing consumer preferences with merchants’ needs.

Future Investment Strategy: Hardware and Embedded AI

Alibaba’s Chief Financial Officer (CFO) has announced plans to continue robust AI investments for the next two years. The focus will shift towards expanding cloud and AI infrastructure in external markets, growing the consumer AI sector, and venturing into hard-tech areas such as AI hardware, embedded AI, and drones.

Regarding reports of investment in DeepSeek, Alibaba has clearly denied involvement. The company stated that interactions between its semiconductor unit T-Head and DeepSeek are limited to business collaboration and product procurement, with no investment relationship.

The virtuous cycle of “returns from investment” and “cloud revenue” established by Alibaba demonstrates that the company’s AI strategy is starting to pay off. However, it will take time and experimentation to fully realize synergies with existing businesses such as e-commerce and instant retail.