Alibaba folds cloud, T-Head into AI unit as profit drops 75%

Alibaba Group reorganized its cloud and chip businesses into a single AI cloud unit, consolidating e-commerce operations as the company's June-quarter profit fell 75 percent to 10.5 billion yuan.

"With our full-stack AI strategy, we have put Alibaba in a superior position to capture the substantial growth of demand for artificial intelligence and AI compute," Chief Executive Officer Eddie Wu said in a statement.

Cloud revenue rose 45 percent year over year to 48.4 billion yuan, while capital expenditure climbed 75 percent to 67.7 billion yuan ($10 billion) as the company bought computing capacity and chips. AI-related product revenue posted triple-digit growth for a twelfth consecutive quarter, Wu said. The company registered a free-cash outflow of 44.7 billion yuan ($6.6 billion).

The restructuring, announced Thursday, folds Cloud Intelligence Group and chip designer T-Head into a new "AI Cloud and Compute Services" unit, while Alibaba China E-commerce Group, Alibaba International Digital Commerce Group and Freshippo form "Alibaba E-commerce Group." AI model labs, the Qwen consumer business and QwenWork were combined into "AI Labs and Applications." Alibaba shares rose 1.61 percent in Hong Kong on the announcement.

Qwen Flywheel Drives Cloud Growth

The reorganization sharpens Alibaba's bet on Qwen, its open-source family of large language models. Offering the models at no cost acts as an onboarding pipeline, as developers who use Qwen need the computing infrastructure, hosting and storage that Alibaba Cloud supplies. The Qwen app has topped 100 million monthly active users, and Alibaba's 460-plus open-source models have generated more than 300,000 derivatives, surpassing downloads by Meta Platforms and Alphabet.

Alibaba's cloud unit, the leading provider in Asia Pacific, grew 38 percent year over year to $6 billion in a recent quarter. The company earlier this month released Qwen3.8-Max, which it described as its most powerful model, with benchmark scores comparable to Anthropic's Fable 5, and Qwen3.8-27B, designed to run on consumer laptops. Apple has begun using Alibaba's models in China, though the iPhone maker is reportedly developing its own models with Alibaba's support.

Spending Pressures Weigh on Profit

The AI push comes at a cost. Capital expenditure jumped 75 percent to 67.7 billion yuan, driven by uneven timing of customer purchases, higher CPU-compute capacity and rising prices across chip components. The free-cash outflow of 44.7 billion yuan could raise concerns about capital needs and investment returns, Citi analysts said in a note.

Alibaba has been shedding non-core assets to fund the pivot. It agreed this month to sell its entire stake in game studio Lingxi Games to private equity firm Trustar Capital for at least $1.5 billion, following the sale of hypermarket chain Sun Art and department store operator Intime for a combined $2.6 billion. The divestitures free resources for AI and e-commerce investment.

Alibaba trades at 17 times forward earnings, a multiple that leaves room to re-rate if AI and cloud growth keeps compounding. Hedge fund ownership fell to 102 funds last quarter from 115, a pullback in institutional conviction even as shares rallied 27.4 percent in July. The restructuring consolidates Alibaba's AI assets under clearer reporting lines, giving investors a direct view of how much the company is spending on AI and how its products are progressing.

This article is for informational purposes only and does not constitute investment advice.