Alibaba's Profit Plunges 75% as AI Investments Soar and Stock Swings

Alibaba entered 2026 with a renewed focus on artificial intelligence. Earlier in August, the company announced the sale of its gaming division, Lingxi Games, for over $1.5 billion. According to Reuters and other outlets, this move was meant to free up resources and sharpen Alibaba's focus on AI infrastructure and services.

The company had already signaled that AI would be a central part of its future strategy. Executives described a long-term plan to compete globally in AI, particularly as demand for AI-powered cloud services was rising fast.

On August 20, Alibaba reported its quarterly results. Net income had dropped by 75% compared to the previous year, falling to about $1.6 billion, according to Techmeme and Reuters. The main reason, cited across outlets, was a surge in AI spending. Alibaba poured nearly $10 billion into AI infrastructure during the quarter. However, revenue actually grew 9% to around $40 billion, with cloud revenue up 45%.

The steep profit decline rattled investors. CNBC reported that Alibaba's U.S. shares fell 4% immediately after the results. Reports from The Next Web and Bloomberg noted that while profits from the cloud unit soared, the overall bottom line was dragged down by heavy capital expenditures and softer domestic retail sales.

Within days, Alibaba announced a massive HK$80 billion (about $10.2 billion) share sale in Hong Kong to fund further AI expansion. The South China Morning Post and Financial Times reported that the new shares were offered at a discount and the sale was heavily oversubscribed, showing strong investor interest despite recent volatility.

Following the share sale, Alibaba's stock fell again, dropping as much as 8% on August 24, according to World News CNA and Seeking Alpha. In response, Alibaba's top two executives purchased about $15 million in shares, a move reported by Bloomberg Technology and others as an effort to restore market confidence.

Alibaba has successfully raised over $10 billion through its share placement. The funds are earmarked entirely for AI development, with the company aiming to cement its leadership in the field. Despite the profit slump and stock swings, investor demand for the new shares was high.

The company's leadership remains committed to the AI strategy, emphasizing long-term growth over short-term profit. The immediate pressure on Alibaba's stock appears to have eased after the executive share purchases, but the company's financial results are likely to remain under scrutiny as AI spending continues.

The main question is whether Alibaba's massive bet on AI will pay off in future growth and profitability. Investors and analysts will be watching closely to see if the company's AI investments translate into market share gains and improved margins, especially in cloud services and global expansion.