Marketdash
Back to News

Alibaba Q2 FY25 Earnings Call: AI Cloud Growth Accelerates, Quick Commerce Investments Pay Off

MarketDash Editorial Team
13 days ago
Alibaba delivered strong fiscal second-quarter results with AI-driven cloud revenue surging 34% and e-commerce revenue climbing 16%. The company is doubling down on quick commerce and AI infrastructure investments while improving unit economics and market share across key segments.

Alibaba Group Holding Ltd (BABA) reported fiscal second-quarter financial results before Tuesday's market open, and the earnings call transcript reveals a company firing on multiple cylinders while making aggressive bets on AI infrastructure and quick commerce that are starting to pay off in measurable ways.

The headline numbers tell a story of healthy growth: total revenue hit 247.8 billion RMB, representing 15% year-over-year growth when you exclude the divested Sun Art and Intime retail businesses. But the really interesting stuff is happening beneath the surface, particularly in cloud computing and the company's ambitious push into instant delivery.

AI Cloud Business Hits Escape Velocity

Let's start with the cloud business, because this is where things get genuinely exciting. Alibaba Cloud's revenue grew 34% in the quarter, with revenue from external customers accelerating to 29% growth. That's not just good—that's acceleration on top of already strong growth, which is exactly what you want to see when you're making massive infrastructure investments.

CEO Eddie Wu explained that AI-related products have now maintained triple-digit year-over-year growth for nine consecutive quarters. Think about that for a moment. We're not talking about a one-quarter pop. This is sustained, explosive growth that's becoming a meaningful part of the business. AI-related products now account for over 20% of revenue from external customers, and that contribution keeps climbing.

The demand picture is so strong that Wu admitted they literally cannot deploy servers fast enough to keep up with customer orders. "We're not even able to keep pace with the growth in customer demand and in orders in terms of the pace at which we can deploy new servers," he said. That's a good problem to have, assuming you can eventually solve the supply chain constraints.

What's driving all this demand? According to Wu, it's coming from across the enterprise spectrum—product development, manufacturing processes, customer service applications. As AI adoption deepens across business operations, all that model training and inference requires massive amounts of compute power. And enterprises are choosing vendors like Alibaba that offer full-stack AI capabilities, from high-performance infrastructure to foundation models to development frameworks.

Alibaba's flagship Qwen-3 Max model ranks among global leaders in real-world coding tasks and agent tool use capabilities. The company has become the clear leader in China's AI cloud market, with market share larger than the second through fourth-largest providers combined. In hybrid cloud, Alibaba is growing more than 20% year-over-year, outpacing the broader market. Recent partnership wins include the NBA, Marriott China, UnionPay, and Bosch.

The Qwen App Enters Consumer AI

Here's where Alibaba's strategy gets interesting: they're not content to just serve enterprise AI customers. Last week they launched the Qwen app, aiming to build the most advanced personal AI assistant powered by their latest models. In the first week of public beta, the app surpassed 10 million downloads.

Wu positioned this as a strategic play that only Alibaba can make in China. "Alibaba is the only company in China with both a leading large model and extensive lifestyle and commerce use cases," he explained. The plan is to gradually integrate e-commerce, maps, navigation, local services and more into Qwen, making it an AI-powered entry point for everyday life.

The synergy potential is real. Qwen-3 Max's intelligence and tool use capabilities, combined with Alibaba's rich consumer ecosystem, contributed to exceptional user retention during the beta. The company believes this is the right moment to scale consumer AI efforts, and they're betting that AI innovation and ecosystem collaboration will reinforce each other to deliver substantial user value.

Quick Commerce: Burning Cash More Efficiently

Now let's talk about quick commerce, because this is where Alibaba is spending serious money and the financial impact shows up clearly in the results. The quick commerce business saw 60% revenue growth during the quarter, but more importantly, the unit economics story is improving dramatically.

Jiang Fan, CEO of Alibaba E-Commerce Business Group, walked through the progress in detail. Since November, per-order unit economics losses have been cut by 50% compared to July-August levels. That's a massive improvement in a very short period of time. And here's the key: they achieved this while maintaining stable market share, with GMV share holding steady and trending upward.

How did they pull this off? Two main drivers. First, order mix optimization. The share of higher average order value orders has increased significantly. Non-beverage orders now account for over 75% of total orders, and average order value for quick commerce has grown by double digits compared to August. When your average order is bigger, the economics work better—pretty straightforward.

Second, logistics efficiency at scale. As order volume grows, quick commerce is realizing clear economies of scale in fulfillment and delivery. Delivery speed is now faster than the same period last year, while average logistics cost per order has declined significantly. In fact, average cost per order is now lower than before they started making large-scale quick commerce investments. That's the power of scale, and it's exactly what you want to see in a business model that requires upfront investment.

During this period of narrowing losses, both user retention and purchase frequency outperformed expectations. The quick commerce business is also driving growth in related categories—groceries, healthcare products, and supermarket segments within physical e-commerce. Freshippo and Tmall supermarket quick commerce orders are up 30% from August.

Approximately 3,500 brands on Tmall have now onboarded their offline stores to the quick commerce business as of October 31. The company is actively working to integrate merchants and brands onto Taobao instant commerce and accelerate synergies between key retail categories and the quick commerce model.

Jiang Fan laid out the roadmap: "Quick Commerce is a core strategic pillar in the Taobao Tmall Group's platform upgrade. Our goal is to generate 1 trillion RMB in GMV for the platform within three years, thereby driving market share gains across the related categories." That's an ambitious target, but the trajectory so far suggests it's achievable if they continue executing on unit economics improvements.

AMAP Hits Records, Street Stars Takes Off

Beyond quick commerce, Alibaba's AMAP navigation and local services platform is hitting new milestones. On October 1, AMAP daily active users reached a historical high of 360 million. That's a staggering number of people using the service on a single day.

The growth driver here is a feature called Street Stars, which AMAP launched in September. Street Stars averaged more than 70 million daily active users in October, with average daily user reviews more than triple the amount from the same period last year. That kind of engagement growth indicates strong future potential.

What's Street Stars? It's a trust-based rating system for local offline services that uses user-consented metrics like credit ratings. Wu emphasized that enhancing consumer trust is essential to strengthening consumer confidence, enabling merchants to focus on operations while giving consumers peace of mind. It's a thoughtful approach to the perennial challenge of marketplace quality and trust.

The Financial Picture

CFO Toby Xu walked through the consolidated results. Total adjusted EBITDA decreased 78%, primarily due to strategic investments in the quick commerce business. That sounds dramatic, but it's the expected result of the investment cycle they're in. The company is deliberately spending money to build a winning quick commerce business and establish AI leadership.

GAAP net income was 20.6 billion RMB, down 53% year-over-year. Operating cash flow was 10 billion RMB, a decrease of 21.3 billion RMB compared to the same quarter last year, mainly due to quick commerce investments. Free cash flow was an outflow of 21.8 billion RMB, reflecting significant investments in quick commerce and AI cloud infrastructure.

But here's the thing: Alibaba's balance sheet remains fortress-like, with $41 billion in net cash. Xu emphasized this point: "Our strong balance sheet, backed by US$41 billion in net cash gives us confidence for this reinvestment strategy." They have the financial firepower to make these investments without breaking a sweat.

China E-Commerce Group revenue was 132.6 billion RMB, up 16%. Customer management revenue increased 10%, primarily due to improving take rates from the increasing penetration of Quanzhan Tui (a full-site promotion tool) and the addition of software service fees. The quick commerce business saw 60% revenue growth.

Adjusted EBITDA from China E-Commerce Group was 10.5 billion RMB. Excluding losses from quick commerce, the e-commerce group EBITDA would have grown at mid-single digit year-over-year. Xu noted that going forward, adjusted EBITDA may fluctuate quarter to quarter due to intense competition and significant investment in user experience.

The international e-commerce business (AIDC) grew revenue 10%. AliExpress has developed its Direct model leveraging local inventories in over 30 countries and launched the Brand+ program to help Chinese brands expand overseas. A combination of logistics optimization and investment efficiency improvements resulted in AIDC achieving adjusted EBITDA profit of 162 million RMB this quarter. Looking ahead, AIDC adjusted EBITDA may fluctuate due to tactical investments in select markets.

Cloud segment revenue and external customer revenue both accelerated significantly to 34% and 29% growth respectively, driven by public cloud revenue growth including AI-related products. Adjusted EBITDA margin remained relatively stable at 9%. The company will continue investing in customer growth and technology innovation to increase AI infrastructure adoption and strengthen market leadership.

The "all other" segment saw revenue decrease 25%, mainly due to the disposal of Sun Art and Intime businesses. This segment posted an adjusted EBITDA loss of 3.4 billion RMB, primarily due to increased investment in technology businesses, partly offset by improving results in other areas. Notably, Hema (Freshippo) has achieved profitability for three consecutive quarters. The "all other" segment includes strategic AI-driven technology infrastructure and businesses, including foundation models and AI apps.

CapEx: Going Even Bigger

One of the most revealing moments in the Q&A came when Wu addressed capital expenditure plans. Alibaba had previously mentioned a 380 billion RMB three-year CapEx plan, and they've already spent about 120 billion RMB over the past four quarters.

Wu's response was telling: "Based on what we're seeing now, and as I just mentioned, the pace at which we can add new servers is insufficient to keep up with the growth in customer orders." He noted that looking at the CapEx situation today, considering supply chain constraints and the pace at which they can build data centers and launch new servers, "we wouldn't rule out further scaling up that CapEx investment."

Then he dropped this line: "In overall terms, I would say that the 380 billion figure we had mentioned previously might be on the small side, certainly in terms of the customer demand that we're currently seeing."

Translation: Alibaba is prepared to spend even more aggressively on AI infrastructure than their already-massive original plan indicated. When a company with $41 billion in net cash tells you their huge CapEx budget might be too small, that tells you something about the demand environment they're seeing.

Wu also pushed back on the idea that you can calculate a simple ratio between CapEx and incremental revenue. The AI sector is still in early development phases, and infrastructure is being used in multiple ways: servers rented directly to customers for training, servers rented for inference, internal Alibaba use for applications like AMAP and Taobao, and transformation into membership-based products. Different applications yield different revenues and gross margins, so any ratio would be unstable at this stage.

What Alibaba cares about more, Wu explained, is that their infrastructure serves high-quality tokens with good cost effectiveness. In the long term, that's what matters.

The AI Bubble Question

Wu addressed the elephant in the room directly when discussing whether there's an AI bubble forming. His view? Not in the next three years, at least.

He laid out two key dynamics. On the demand side, foundation models keep getting more powerful with no sign of hitting scaling law limits. As models become more capable, they can handle more real-world tasks across more industries and business operations. That creates strong, definitive demand growth over the next three years.

On the supply side, there's a global shortage across the entire value chain—fabs, DRAM vendors, storage companies, CPU manufacturers, all the components that go into AI servers. Wu expects this supply constraint to continue throughout the scaling and investment cycle. "I think that it could be at least a period of two or three years for those different suppliers, those different vendors to be able to ramp up their production capacity."

His observation about US hyperscalers is particularly telling: "If we look at the hyperscalers in the US, all of the latest GPUs that are running are running at full capacity. Not just them—last generation GPUs, even GPUs from three to five years ago, so several generations back, those GPUs are to this day still running at full capacity."

When even old GPUs are running at maximum utilization, you're not in bubble territory. You're in genuine demand territory.

Strategic Priorities and Trade-offs

Wu also shared some useful insight into how Alibaba prioritizes its AI infrastructure investments across different use cases. The top priority is ensuring they can continually train their own foundation models. Why? Because their ability to acquire customers and unlock high-value use cases depends on iterating and upgrading their models to unlock new demand and use cases.

The second priority is inference-as-a-service on Bailian, their AI platform. They want to ensure AI resources are available and utilized efficiently 24/7, with servers running at full capacity around the clock to generate more tokens.

Beyond that, they consider internal use cases and external customers who rent inference services. But even among external customers, there's a hierarchy. Customers utilizing the full range of Alibaba cloud services—storage, big data, and everything else—get higher priority. Customers merely renting a GPU for simple inferencing needs get lower priority.

It's a rational approach to resource allocation when demand exceeds supply, which is exactly the situation they're in.

E-Commerce Outlook and Investment Trade-offs

During the Q&A, management addressed questions about customer management revenue and EBITDA outlook for the e-commerce business. Xu noted that quick commerce is having a significant positive effect on user engagement and driving transactions in relevant categories, which helps CMR. The main task now is better integrating conventional e-commerce and quick commerce to fully realize that impact.

September quarter will likely be the period with the highest investment scale in quick commerce. As efficiency improves, unit economics improve, and business scale stabilizes, they expect to see significant reduction in investment scale by next quarter. However, they'll dynamically adjust investment pace and size based on market competition.

For CMR specifically, there will be impact from base effects related to payment processing fees and the rollout of Quanzhan Tui. Alibaba started charging payment processing fees in September last year, so starting next quarter they'll see growth slowdown from that base effect.

But Xu emphasized the key point: "Our primary and foremost objective is to secure market share for the medium and long term, and during this process we will continue to decisively invest in consumers and in merchants and we will resolutely move ahead with business model upgrading of our e-commerce platform."

Translation: expect short-term fluctuations in CMR and EBITDA as they prioritize market share and platform transformation over near-term profitability optimization. For a company with Alibaba's balance sheet and market position, this is the right strategic choice, even if it creates quarterly volatility.

The Path Forward for Quick Commerce

Jiang Fan provided useful color on the quick commerce roadmap when asked about how cost savings from efficiency improvements will be allocated. His answer revealed the company's thinking about balancing subsidies to consumers, merchants, and platform economics.

The strategy involves enhancing user experience while increasing average order value, which increases revenue per order since revenues are proportionate to order value. They're also continuing to optimize fulfillment logistics efficiency as they scale. Fan sees "considerable scope" for further improvement.

On the consumer side, the past few months have focused primarily on acquiring new users. Now they're working on converting those users into highly sticky platform users, which will increase average order size and allow them to modify subsidy approaches. The quick commerce channel on Taobao now has over 100 million daily users, which Fan noted represents "considerable potential for monetization" and opportunities to improve unit economics.

The caveat: "The market is a highly competitive market, so we will be looking at those opportunities, but adjusting our approach dynamically in line with market dynamics." In other words, they have a plan for improving economics, but they won't sacrifice market position to get there if competition heats up.

Beyond Quick Commerce: The Broader Consumption Play

When asked about other sub-sectors in consumption beyond quick commerce where Alibaba might scale up investments, Jiang Fan's answer was revealing in what it didn't say. Rather than naming new areas for major investment, he emphasized integration and synergies across existing businesses.

"Alibaba has been investing strategically in the consumption market over many years and we've entered a huge number of different categories and sub-verticals," he explained. Beyond quick commerce, they have Freshippo, offline O2O, Fliggy (travel), AMAP, and local services. "What we need to be doing now really is working to integrate and connect those businesses and to drive more synergies across those existing businesses."

It's a mature answer that suggests the company is focused on extracting value from what they've already built rather than chasing shiny new objects. Given how many balls they're already juggling—quick commerce scaling, AI infrastructure buildout, consumer AI apps, cloud business acceleration—that discipline makes sense.

What It All Means

Alibaba is in the middle of a major investment cycle across both AI infrastructure and quick commerce, and the early returns look promising. Cloud revenue is accelerating with strong AI-driven growth, quick commerce unit economics are improving rapidly while maintaining market share, and the consumer AI app launch suggests they're serious about competing across both enterprise and consumer AI applications.

The financial hit to near-term profitability is real but manageable given the balance sheet strength. Management is clearly prioritizing market share and strategic positioning over short-term earnings optimization, which is the right call when you're building businesses with significant scale advantages and network effects.

The supply-constrained AI infrastructure market gives Alibaba confidence to potentially increase CapEx beyond already-massive levels. When customer demand is growing faster than you can deploy servers, and even old-generation GPUs are running at full capacity across the industry, you're not worried about stranded assets or wasted investment.

The key questions going forward: Can quick commerce unit economics continue improving to reach break-even and eventual profitability while maintaining market share? Will the Qwen consumer AI app gain enough traction to become a meaningful platform play? Can cloud business growth continue accelerating as AI-related products become an ever-larger share of the mix?

Based on this quarter's results and management commentary, Alibaba is making the right bets and executing well on the operational details that matter. The strategy is coherent, the execution is improving, and the financial resources to see it through are abundant. Not a bad position to be in.

Back to News

Alibaba Q2 FY25 Earnings Call: AI Cloud Growth Accelerates, Quick Commerce Investments Pay Off

MarketDash Editorial Team
13 days ago
Alibaba delivered strong fiscal second-quarter results with AI-driven cloud revenue surging 34% and e-commerce revenue climbing 16%. The company is doubling down on quick commerce and AI infrastructure investments while improving unit economics and market share across key segments.

Alibaba Group Holding Ltd (BABA) reported fiscal second-quarter financial results before Tuesday's market open, and the earnings call transcript reveals a company firing on multiple cylinders while making aggressive bets on AI infrastructure and quick commerce that are starting to pay off in measurable ways.

The headline numbers tell a story of healthy growth: total revenue hit 247.8 billion RMB, representing 15% year-over-year growth when you exclude the divested Sun Art and Intime retail businesses. But the really interesting stuff is happening beneath the surface, particularly in cloud computing and the company's ambitious push into instant delivery.

AI Cloud Business Hits Escape Velocity

Let's start with the cloud business, because this is where things get genuinely exciting. Alibaba Cloud's revenue grew 34% in the quarter, with revenue from external customers accelerating to 29% growth. That's not just good—that's acceleration on top of already strong growth, which is exactly what you want to see when you're making massive infrastructure investments.

CEO Eddie Wu explained that AI-related products have now maintained triple-digit year-over-year growth for nine consecutive quarters. Think about that for a moment. We're not talking about a one-quarter pop. This is sustained, explosive growth that's becoming a meaningful part of the business. AI-related products now account for over 20% of revenue from external customers, and that contribution keeps climbing.

The demand picture is so strong that Wu admitted they literally cannot deploy servers fast enough to keep up with customer orders. "We're not even able to keep pace with the growth in customer demand and in orders in terms of the pace at which we can deploy new servers," he said. That's a good problem to have, assuming you can eventually solve the supply chain constraints.

What's driving all this demand? According to Wu, it's coming from across the enterprise spectrum—product development, manufacturing processes, customer service applications. As AI adoption deepens across business operations, all that model training and inference requires massive amounts of compute power. And enterprises are choosing vendors like Alibaba that offer full-stack AI capabilities, from high-performance infrastructure to foundation models to development frameworks.

Alibaba's flagship Qwen-3 Max model ranks among global leaders in real-world coding tasks and agent tool use capabilities. The company has become the clear leader in China's AI cloud market, with market share larger than the second through fourth-largest providers combined. In hybrid cloud, Alibaba is growing more than 20% year-over-year, outpacing the broader market. Recent partnership wins include the NBA, Marriott China, UnionPay, and Bosch.

The Qwen App Enters Consumer AI

Here's where Alibaba's strategy gets interesting: they're not content to just serve enterprise AI customers. Last week they launched the Qwen app, aiming to build the most advanced personal AI assistant powered by their latest models. In the first week of public beta, the app surpassed 10 million downloads.

Wu positioned this as a strategic play that only Alibaba can make in China. "Alibaba is the only company in China with both a leading large model and extensive lifestyle and commerce use cases," he explained. The plan is to gradually integrate e-commerce, maps, navigation, local services and more into Qwen, making it an AI-powered entry point for everyday life.

The synergy potential is real. Qwen-3 Max's intelligence and tool use capabilities, combined with Alibaba's rich consumer ecosystem, contributed to exceptional user retention during the beta. The company believes this is the right moment to scale consumer AI efforts, and they're betting that AI innovation and ecosystem collaboration will reinforce each other to deliver substantial user value.

Quick Commerce: Burning Cash More Efficiently

Now let's talk about quick commerce, because this is where Alibaba is spending serious money and the financial impact shows up clearly in the results. The quick commerce business saw 60% revenue growth during the quarter, but more importantly, the unit economics story is improving dramatically.

Jiang Fan, CEO of Alibaba E-Commerce Business Group, walked through the progress in detail. Since November, per-order unit economics losses have been cut by 50% compared to July-August levels. That's a massive improvement in a very short period of time. And here's the key: they achieved this while maintaining stable market share, with GMV share holding steady and trending upward.

How did they pull this off? Two main drivers. First, order mix optimization. The share of higher average order value orders has increased significantly. Non-beverage orders now account for over 75% of total orders, and average order value for quick commerce has grown by double digits compared to August. When your average order is bigger, the economics work better—pretty straightforward.

Second, logistics efficiency at scale. As order volume grows, quick commerce is realizing clear economies of scale in fulfillment and delivery. Delivery speed is now faster than the same period last year, while average logistics cost per order has declined significantly. In fact, average cost per order is now lower than before they started making large-scale quick commerce investments. That's the power of scale, and it's exactly what you want to see in a business model that requires upfront investment.

During this period of narrowing losses, both user retention and purchase frequency outperformed expectations. The quick commerce business is also driving growth in related categories—groceries, healthcare products, and supermarket segments within physical e-commerce. Freshippo and Tmall supermarket quick commerce orders are up 30% from August.

Approximately 3,500 brands on Tmall have now onboarded their offline stores to the quick commerce business as of October 31. The company is actively working to integrate merchants and brands onto Taobao instant commerce and accelerate synergies between key retail categories and the quick commerce model.

Jiang Fan laid out the roadmap: "Quick Commerce is a core strategic pillar in the Taobao Tmall Group's platform upgrade. Our goal is to generate 1 trillion RMB in GMV for the platform within three years, thereby driving market share gains across the related categories." That's an ambitious target, but the trajectory so far suggests it's achievable if they continue executing on unit economics improvements.

AMAP Hits Records, Street Stars Takes Off

Beyond quick commerce, Alibaba's AMAP navigation and local services platform is hitting new milestones. On October 1, AMAP daily active users reached a historical high of 360 million. That's a staggering number of people using the service on a single day.

The growth driver here is a feature called Street Stars, which AMAP launched in September. Street Stars averaged more than 70 million daily active users in October, with average daily user reviews more than triple the amount from the same period last year. That kind of engagement growth indicates strong future potential.

What's Street Stars? It's a trust-based rating system for local offline services that uses user-consented metrics like credit ratings. Wu emphasized that enhancing consumer trust is essential to strengthening consumer confidence, enabling merchants to focus on operations while giving consumers peace of mind. It's a thoughtful approach to the perennial challenge of marketplace quality and trust.

The Financial Picture

CFO Toby Xu walked through the consolidated results. Total adjusted EBITDA decreased 78%, primarily due to strategic investments in the quick commerce business. That sounds dramatic, but it's the expected result of the investment cycle they're in. The company is deliberately spending money to build a winning quick commerce business and establish AI leadership.

GAAP net income was 20.6 billion RMB, down 53% year-over-year. Operating cash flow was 10 billion RMB, a decrease of 21.3 billion RMB compared to the same quarter last year, mainly due to quick commerce investments. Free cash flow was an outflow of 21.8 billion RMB, reflecting significant investments in quick commerce and AI cloud infrastructure.

But here's the thing: Alibaba's balance sheet remains fortress-like, with $41 billion in net cash. Xu emphasized this point: "Our strong balance sheet, backed by US$41 billion in net cash gives us confidence for this reinvestment strategy." They have the financial firepower to make these investments without breaking a sweat.

China E-Commerce Group revenue was 132.6 billion RMB, up 16%. Customer management revenue increased 10%, primarily due to improving take rates from the increasing penetration of Quanzhan Tui (a full-site promotion tool) and the addition of software service fees. The quick commerce business saw 60% revenue growth.

Adjusted EBITDA from China E-Commerce Group was 10.5 billion RMB. Excluding losses from quick commerce, the e-commerce group EBITDA would have grown at mid-single digit year-over-year. Xu noted that going forward, adjusted EBITDA may fluctuate quarter to quarter due to intense competition and significant investment in user experience.

The international e-commerce business (AIDC) grew revenue 10%. AliExpress has developed its Direct model leveraging local inventories in over 30 countries and launched the Brand+ program to help Chinese brands expand overseas. A combination of logistics optimization and investment efficiency improvements resulted in AIDC achieving adjusted EBITDA profit of 162 million RMB this quarter. Looking ahead, AIDC adjusted EBITDA may fluctuate due to tactical investments in select markets.

Cloud segment revenue and external customer revenue both accelerated significantly to 34% and 29% growth respectively, driven by public cloud revenue growth including AI-related products. Adjusted EBITDA margin remained relatively stable at 9%. The company will continue investing in customer growth and technology innovation to increase AI infrastructure adoption and strengthen market leadership.

The "all other" segment saw revenue decrease 25%, mainly due to the disposal of Sun Art and Intime businesses. This segment posted an adjusted EBITDA loss of 3.4 billion RMB, primarily due to increased investment in technology businesses, partly offset by improving results in other areas. Notably, Hema (Freshippo) has achieved profitability for three consecutive quarters. The "all other" segment includes strategic AI-driven technology infrastructure and businesses, including foundation models and AI apps.

CapEx: Going Even Bigger

One of the most revealing moments in the Q&A came when Wu addressed capital expenditure plans. Alibaba had previously mentioned a 380 billion RMB three-year CapEx plan, and they've already spent about 120 billion RMB over the past four quarters.

Wu's response was telling: "Based on what we're seeing now, and as I just mentioned, the pace at which we can add new servers is insufficient to keep up with the growth in customer orders." He noted that looking at the CapEx situation today, considering supply chain constraints and the pace at which they can build data centers and launch new servers, "we wouldn't rule out further scaling up that CapEx investment."

Then he dropped this line: "In overall terms, I would say that the 380 billion figure we had mentioned previously might be on the small side, certainly in terms of the customer demand that we're currently seeing."

Translation: Alibaba is prepared to spend even more aggressively on AI infrastructure than their already-massive original plan indicated. When a company with $41 billion in net cash tells you their huge CapEx budget might be too small, that tells you something about the demand environment they're seeing.

Wu also pushed back on the idea that you can calculate a simple ratio between CapEx and incremental revenue. The AI sector is still in early development phases, and infrastructure is being used in multiple ways: servers rented directly to customers for training, servers rented for inference, internal Alibaba use for applications like AMAP and Taobao, and transformation into membership-based products. Different applications yield different revenues and gross margins, so any ratio would be unstable at this stage.

What Alibaba cares about more, Wu explained, is that their infrastructure serves high-quality tokens with good cost effectiveness. In the long term, that's what matters.

The AI Bubble Question

Wu addressed the elephant in the room directly when discussing whether there's an AI bubble forming. His view? Not in the next three years, at least.

He laid out two key dynamics. On the demand side, foundation models keep getting more powerful with no sign of hitting scaling law limits. As models become more capable, they can handle more real-world tasks across more industries and business operations. That creates strong, definitive demand growth over the next three years.

On the supply side, there's a global shortage across the entire value chain—fabs, DRAM vendors, storage companies, CPU manufacturers, all the components that go into AI servers. Wu expects this supply constraint to continue throughout the scaling and investment cycle. "I think that it could be at least a period of two or three years for those different suppliers, those different vendors to be able to ramp up their production capacity."

His observation about US hyperscalers is particularly telling: "If we look at the hyperscalers in the US, all of the latest GPUs that are running are running at full capacity. Not just them—last generation GPUs, even GPUs from three to five years ago, so several generations back, those GPUs are to this day still running at full capacity."

When even old GPUs are running at maximum utilization, you're not in bubble territory. You're in genuine demand territory.

Strategic Priorities and Trade-offs

Wu also shared some useful insight into how Alibaba prioritizes its AI infrastructure investments across different use cases. The top priority is ensuring they can continually train their own foundation models. Why? Because their ability to acquire customers and unlock high-value use cases depends on iterating and upgrading their models to unlock new demand and use cases.

The second priority is inference-as-a-service on Bailian, their AI platform. They want to ensure AI resources are available and utilized efficiently 24/7, with servers running at full capacity around the clock to generate more tokens.

Beyond that, they consider internal use cases and external customers who rent inference services. But even among external customers, there's a hierarchy. Customers utilizing the full range of Alibaba cloud services—storage, big data, and everything else—get higher priority. Customers merely renting a GPU for simple inferencing needs get lower priority.

It's a rational approach to resource allocation when demand exceeds supply, which is exactly the situation they're in.

E-Commerce Outlook and Investment Trade-offs

During the Q&A, management addressed questions about customer management revenue and EBITDA outlook for the e-commerce business. Xu noted that quick commerce is having a significant positive effect on user engagement and driving transactions in relevant categories, which helps CMR. The main task now is better integrating conventional e-commerce and quick commerce to fully realize that impact.

September quarter will likely be the period with the highest investment scale in quick commerce. As efficiency improves, unit economics improve, and business scale stabilizes, they expect to see significant reduction in investment scale by next quarter. However, they'll dynamically adjust investment pace and size based on market competition.

For CMR specifically, there will be impact from base effects related to payment processing fees and the rollout of Quanzhan Tui. Alibaba started charging payment processing fees in September last year, so starting next quarter they'll see growth slowdown from that base effect.

But Xu emphasized the key point: "Our primary and foremost objective is to secure market share for the medium and long term, and during this process we will continue to decisively invest in consumers and in merchants and we will resolutely move ahead with business model upgrading of our e-commerce platform."

Translation: expect short-term fluctuations in CMR and EBITDA as they prioritize market share and platform transformation over near-term profitability optimization. For a company with Alibaba's balance sheet and market position, this is the right strategic choice, even if it creates quarterly volatility.

The Path Forward for Quick Commerce

Jiang Fan provided useful color on the quick commerce roadmap when asked about how cost savings from efficiency improvements will be allocated. His answer revealed the company's thinking about balancing subsidies to consumers, merchants, and platform economics.

The strategy involves enhancing user experience while increasing average order value, which increases revenue per order since revenues are proportionate to order value. They're also continuing to optimize fulfillment logistics efficiency as they scale. Fan sees "considerable scope" for further improvement.

On the consumer side, the past few months have focused primarily on acquiring new users. Now they're working on converting those users into highly sticky platform users, which will increase average order size and allow them to modify subsidy approaches. The quick commerce channel on Taobao now has over 100 million daily users, which Fan noted represents "considerable potential for monetization" and opportunities to improve unit economics.

The caveat: "The market is a highly competitive market, so we will be looking at those opportunities, but adjusting our approach dynamically in line with market dynamics." In other words, they have a plan for improving economics, but they won't sacrifice market position to get there if competition heats up.

Beyond Quick Commerce: The Broader Consumption Play

When asked about other sub-sectors in consumption beyond quick commerce where Alibaba might scale up investments, Jiang Fan's answer was revealing in what it didn't say. Rather than naming new areas for major investment, he emphasized integration and synergies across existing businesses.

"Alibaba has been investing strategically in the consumption market over many years and we've entered a huge number of different categories and sub-verticals," he explained. Beyond quick commerce, they have Freshippo, offline O2O, Fliggy (travel), AMAP, and local services. "What we need to be doing now really is working to integrate and connect those businesses and to drive more synergies across those existing businesses."

It's a mature answer that suggests the company is focused on extracting value from what they've already built rather than chasing shiny new objects. Given how many balls they're already juggling—quick commerce scaling, AI infrastructure buildout, consumer AI apps, cloud business acceleration—that discipline makes sense.

What It All Means

Alibaba is in the middle of a major investment cycle across both AI infrastructure and quick commerce, and the early returns look promising. Cloud revenue is accelerating with strong AI-driven growth, quick commerce unit economics are improving rapidly while maintaining market share, and the consumer AI app launch suggests they're serious about competing across both enterprise and consumer AI applications.

The financial hit to near-term profitability is real but manageable given the balance sheet strength. Management is clearly prioritizing market share and strategic positioning over short-term earnings optimization, which is the right call when you're building businesses with significant scale advantages and network effects.

The supply-constrained AI infrastructure market gives Alibaba confidence to potentially increase CapEx beyond already-massive levels. When customer demand is growing faster than you can deploy servers, and even old-generation GPUs are running at full capacity across the industry, you're not worried about stranded assets or wasted investment.

The key questions going forward: Can quick commerce unit economics continue improving to reach break-even and eventual profitability while maintaining market share? Will the Qwen consumer AI app gain enough traction to become a meaningful platform play? Can cloud business growth continue accelerating as AI-related products become an ever-larger share of the mix?

Based on this quarter's results and management commentary, Alibaba is making the right bets and executing well on the operational details that matter. The strategy is coherent, the execution is improving, and the financial resources to see it through are abundant. Not a bad position to be in.

    Alibaba Q2 FY25 Earnings Call: AI Cloud Growth Accelerates, Quick Commerce Investments Pay Off - MarketDash News