By Luz Ding

(Bloomberg) -- Alibaba Group Holding Ltd.’s earnings plunged while revenue barely grew, underscoring the urgency behind the Chinese e-commerce leader’s drive to wring more profits out of a swathe of costly AI endeavors.

The company posted a 2% rise in sales to 284.8 billion yuan ($41.3 billion) for the three months ended December, just shy of the average projection. But net income plummeted 67% — its worst performance since early 2024 — hurt in part by heavy spending on promotions to fend off rivals in commerce. Alibaba’s US-listed shares slid 4% in pre-market trading.

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The disappointing results show why the company is driving a major restructuring aimed at generating profit off its sprawling AI endeavors. The company this week launched an agentic AI service known as Wukong for company clients, and hiked prices for its cloud computing and storage services by as much as 34%. Alibaba is keen to monetize its growing AI portfolio in part to offset losses in its e-commerce business, which is grappling with fierce domestic competition.

Click here for a liveblog on Alibaba’s results.

The Hangzhou-based company — one of the world’s largest cloud service providers — is considered a frontrunner in China’s race toward artificial general intelligence. It’s also the most aggressive in terms of spending: Alibaba has pledged more than $53 billion of AI investment over several years, far surpassing its Chinese rivals though a fraction of the $650 billion that US hyperscalers intend to shell out in 2026.

Alibaba’s cloud unit has since become the group’s fastest-growing business, with the company recording triple-digit revenue growth from AI-related products over 10 consecutive quarters.

Alibaba has since shifted its focus back to enterprise-facing products, launching a major restructuring centered on selling AI services mainly to businesses. With the creation of a new business group called Alibaba Token Hub, nearly all AI-related units now come under a single umbrella led by Chief Executive Officer Eddie Wu. The new business unit’s name refers to the units of computing (such as keywords) that serve as a benchmark for AI usage as well as a framework for charging those users.

It “shows the explosive AI demand from strong token usage,” Morgan Stanley’s Gary Yu said in a research note this week. “The biggest implication is that it further strengthens commercialization of AI.”

What Bloomberg Intelligence Says:

Baidu’s decision to raise AI cloud product prices by as much as 30%, according to Bloomberg News, is a positive development that signals a shift toward monetization rather than price competition. Though higher prices can help firms stem operating losses, the fragmented sector’s long-term path to profit remains unclear. Baidu’s move mirrors similar steps by Tencent, Alibaba and Zhipu, catalyzed by surging demand for agentic AI following the launch of OpenClaw.

— Robert Lea and Jasmine Lyu, analysts

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Wu has detailed a plan to build full-stack AI technology, including hardware. The company’s chip unit, T-Head, made headway in acquiring major customers and Alibaba is preparing for a separate listing of the business to tap into investors’ interest on companies providing alternatives to Nvidia Corp.

In the meantime, Alibaba is still deeply involved in an instant delivery price war with Meituan and JD.com Inc. — a battle that’s raged for more than a year and drawn regulatory scrutiny. The company last year offered subsidies worth as much as 50 billion yuan to defend its turf.

E-commerce chief Jiang Fan said in November Alibaba planned for  “sustained long-term investment” in instant commerce, though he said losses have begun to narrow.

--With assistance from Zheping Huang, Henry Ren, Yazhou Sun, Mark Anderson, Jake Rudnitsky, Pradeep Kurup, Mehboob Jeelani and Peter Elstrom.

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