Alibaba Faces Profit Pressure, Denies AI Bubble, and Plans Additional Investment

In November, Alibaba consecutively unveiled its milestone achievements in the field of artificial intelligence (AI). The Qianwen App, a personal AI assistant developed based on the Tongyi Qianwen large language model, and Lingguang App, a multimodal general AI assistant, were launched in the same week. The former was designated by the group as a strategic-level product, directly competing with ChatGPT, while the latter carries Jack Ma’s high hopes of “being the first to charge forward.”These two products also marked Alibaba’s official push into the consumer-facing AI market, whereas the group’s AI strategy had previously focused primarily on B2B applications. The launch of these AI applications brought good news for Alibaba: just one week after the public beta, by November 24, the Qianwen App had exceeded 10 million downloads, surpassing ChatGPT, Sora, and DeepSeek, becoming the fastest-growing AI app in history. Meanwhile, Lingguang App reached over 2 million downloads within six days of launch, far exceeding Alibaba’s internal year-end target of 200,000 users.On November 25, Alibaba released its Q2 fiscal 2026 earnings report. The report showed group revenue of RMB 247.8 billion, up 5% year-on-year, exceeding the prior market expectation of RMB 245.2 billion.

Excluding the impact of divested businesses, revenue growth reached 15% year-on-year. However, Alibaba’s stock price showed relative restraint. On November 25, Alibaba’s U.S. shares fell 2.31%, and on November 26, its Hong Kong shares declined by 1.9%. This may reflect the significant pressure on the group’s profitability this quarter.According to the earnings report, operating profit for the period was RMB 5.365 billion, down 85% year-on-year. Adjusted EBITA (non-GAAP) fell 78% to RMB 9.073 billion, and diluted earnings per ADS were RMB 4.36, down 71%. These results were attributed to Alibaba’s heavy investments this year in two key areas: instant retail and AI. Compared with the fiercely competitive instant retail sector, the AI segment clearly offers more room for growth and future potential.Powered by AI, Alibaba Cloud’s revenue grew 34%, marking its highest growth rate in three years. Among this, AI-related product revenue achieved triple-digit year-on-year growth for the ninth consecutive quarter, contributing roughly 20% of the cloud business’s external revenue. Under the AI wave, the sheer output of AI applications has overwhelmed the market, making it increasingly difficult for concepts alone to directly drive stock performance. The market now increasingly demands quantifiable results before reacting.

Even Alibaba’s consumer AI products initially received muted responses from the capital markets, with stock performance remaining flat or slightly declining in the two days after release.It was only on November 24—one week after Qianwen App’s launch—when its verified 10 million downloads signaled value to the market that Alibaba’s Hong Kong shares rose 4.67% that day.Alibaba’s leadership has expressed strong confidence in AI’s prospects, with future investments set to expand further. CEO Wu Yongming stated during the earnings call that there is no AI bubble expected over the next three years. He remarked, “Looking at the big picture, our previously stated three-year investment plan of RMB 380 billion now seems underestimated.” Alibaba does not rule out additional investments to enhance AI capabilities. A few days prior, board chairman Joe Tsai expressed a similar view on the so-called “AI bubble,” noting, “There may be financial bubbles, but there is no technology bubble.”The launches of Qianwen App and Lingguang App are only the first step in Alibaba’s consumer AI development. According to Wu Yongming, Alibaba aims to build AI-native applications for consumer users. He emphasized, “By advancing both AI for B2B and AI for B2C, we will unleash greater synergies across our core businesses, serving as a driving force for Alibaba’s sustained growth and elevation to new heights.”From a market perspective, Alibaba’s consumer AI applications did not enjoy first-mover advantage.

Prior to its launch, several major internet companies and AI startups had already introduced products like DeepSeek, Kimi, Doubao, and Yuanbao, which had entered public awareness and received substantial capital backing. Although this market segment is far from mature, Alibaba already faces stiff competition.Beyond abundant capital, Alibaba’s edge lies in its underlying large language model capabilities and ecosystem accumulation. Wu highlighted that with the intelligence level of the Qwen3-Max model and the integration of AI with Alibaba’s e-commerce, maps, and local lifestyle ecosystems, Qianwen App is positioned to become the future gateway to AI-powered daily life.On November 25, news emerged that Singapore’s national AI program made a major strategic adjustment, abandoning the Meta model in its latest Southeast Asian language model project and adopting Alibaba’s open-source Tongyi Qianwen (Qwen) framework. This development not only boosts Alibaba’s AI strategy but also indirectly pressures U.S. tech firms that rely heavily on closed-source AI models.Following the earnings release, Goldman Sachs revised its valuation of Alibaba. The research report stated that due to a downward adjustment in its China e-commerce valuation, the 12-month SOTP (sum-of-the-parts) target price was lowered from $205/HK$199 to $197/HK$192. Despite the price cut, Goldman Sachs maintained its “Buy” rating, citing that the cloud business valuation remains intact and “the AI-driven narrative is still intact.”