Alibaba Cloud Revenue Jumps 45%. Is the Profit Plunge and China E-Commerce Slide Cause for Concern?

BABA reported second-quarter revenue of 269 billion yuan ($40 billion), up 9% year-over-year and in line with expectations, but net income collapsed 38% to 20.7 billion yuan, missing analyst estimates. The profit decline stemmed from three factors: capital expenditures surged 75% for AI infrastructure buildout, a 550 million euro EU fine hit the bottom line, and free cash flow turned negative.

The company's cloud division posted 45% revenue growth to 48.4 billion yuan, powered by AI demand. That strength came as domestic e-commerce revenue fell 8%, marking continued weakness in BABA's core Chinese marketplace business. The divergence between the high-growth cloud segment and the declining e-commerce operation defines the company's current transition.

The 75% jump in capex signals aggressive investment in AI infrastructure, which investors are weighing against near-term profitability pressure. The cloud unit's 45% growth rate represents acceleration but comes at the cost of cash generation and margin compression in the current quarter.