The Alibaba Paradox: When red numbers mean green share prices – From trader to tech giant

Stock market turmoil in China: Investors celebrate Alibaba's losses – here's the reason behind it

On the stock market, there's usually an ironclad rule: when profits plummet, the markets punish the stock. But the latest quarterly figures from Alibaba Group Holding Limited turn this logic on its head and reveal a fascinating economic paradox. Although the Chinese tech giant's adjusted net profit slumped dramatically by 72 percent to $1.46 billion and EBITDA came under massive pressure, investors didn't react with panic, but with euphoria – the stock climbed by more than three percent.

What at first glance appears to be pure market irrationality, upon closer analysis reveals itself to be one of the most aggressive strategic realignments in recent tech history. Alibaba is deliberately sacrificing present profits to buy future market power. With investments of around $16.9 billion in the last four quarters and an announced $53 billion package for the next three years, the company is radically transforming itself: away from being a pure e-commerce giant and toward becoming an indispensable infrastructure provider for the age of artificial intelligence.

Markets recognize a historical pattern in this approach, one that already helped Amazon become a global powerhouse: the willingness to sacrifice short-term margins for technological dominance. The following analysis examines why investors see this massive profit slump not as a warning signal, but as the starting signal for a new era, what role the booming cloud division plays in this, and what enormous risks this "all-or-nothing" strategy entails in the current geopolitical climate.

The markets are buying a billion-dollar investment in the future – and selling off the present in return.

The Alibaba Paradox: When red numbers mean green share prices

Alibaba Group Holding Limited's latest quarterly results revealed a remarkable discrepancy between fundamental metrics and market reaction. While adjusted net income plummeted 72 percent to $1.46 billion and adjusted EBITDA fell 64 percent, the stock price jumped more than three percent. This apparent paradox raises fundamental questions about the valuation logic of modern technology companies and the Chinese conglomerate's specific transformation strategy. Analysis shows that the positive market reaction stems less from current profitability than from strategic positioning in artificial intelligence and cloud infrastructure. Alibaba has invested approximately $16.9 billion in AI infrastructure over the past four quarters and announced plans to invest at least 380 billion yuan ($53 billion) in cloud computing and AI over the next three years. These investments exceed total spending over the past decade and signal a fundamental reorientation of the business model. The share price development therefore does not reflect irrationality, but rather a conscious bet by investors on long-term dominance in China's emerging AI economy.

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From e-commerce pioneer to AI infrastructure giant: Alibaba's transformative decade

The origins of the current phenomenon date back several years and can be divided into three phases. The first phase began in 2015, when Alibaba started to establish its cloud business as a separate segment and recognized that digital infrastructure would be crucial for future growth. The second phase marked the peak of regulatory interventions by the Chinese government from 2020 onward, which significantly impacted the profitability of its core commerce business and forced the company to realign its strategy. The third and current phase began in 2024 with the announcement of the “AI-first, user-first” strategy by CEO Eddie Wu and Chairman Joe Tsai. In this phase, Alibaba began to mobilize its enormous cash position of 352.1 billion yuan to achieve a leading position in the global race for artificial intelligence. The latest quarterly results reflect the transition from a mature, profitable e-commerce platform to a growth company in the AI ​​sector. The Cloud Intelligence Group achieved revenue growth of 34 percent to $5.6 billion, while AI-related product revenue recorded triple-digit growth for the fifth and sixth consecutive quarters, respectively. This development follows a proven pattern previously observed at Amazon, where years of investment in cloud infrastructure initially squeezed margins but later led to a dominant market position and high profitability.

The economic architecture behind the profit slump: investments, margins, and market positioning

An analysis of the financial figures reveals a deliberate strategic calculation. Adjusted net income plummeted by 72 percent, while revenue rose by five percent to $34.9 billion, slightly exceeding analysts' expectations of $34.2 billion. This discrepancy stems from three main factors. First, Alibaba is investing heavily in AI infrastructure, which reduced free cash flow by 70 percent to 13.7 billion yuan. Second, the quick-commerce business is expanding with food deliveries, which entails significantly higher marketing costs and is putting short-term pressure on margins. Third, the Cloud Intelligence Group boosted its adjusted EBITDA by 89 percent to 2.7 billion yuan and improved its EBITDA margin by four percentage points to nine percent, indicating a successful product mix shift toward high-margin public cloud products with AI integration. Total investments in AI infrastructure amounted to 120 billion yuan over the past four quarters. These figures show that the decline in profits did not result from operational weakness, but rather from deliberate investment decisions for future growth. Management explicitly emphasized that short-term fluctuations in profitability are to be expected as the company continues to invest in AI, cloud computing, and quick commerce.

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Alibaba in November 2025: A corporation at a strategic crossroads

In the current market environment, Alibaba has achieved a unique position. Its cloud division grew by 34 percent in the most recent quarter, significantly exceeding the forecast of $5.3 billion. The China e-commerce business grew by 16 percent, with the new food and delivery segment incurring high marketing costs but also generating sustainable growth. The stock reacted positively as these figures confirm clear strategic communication. CEO Eddie Wu described AI as a “once-in-a-generation opportunity” and named Artificial General Intelligence (AGI) as the primary long-term goal. The investment of 380 billion yuan over three years exceeds total spending over the past decade and positions Alibaba as a leading Chinese competitor to global players like Microsoft, Amazon, and Google. The Cloud Intelligence Group achieved adjusted EBITDA of 2.7 billion yuan with a margin of nine percent, while the International Digital Commerce (AIDC) business recorded revenue growth of 29 percent. The $4.1 billion share buybacks reduced the number of outstanding shares by 4.4 percent in the first half of fiscal year 2025, thus supporting the share price.

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From Hangzhou to Global: How Alibaba is putting its AI strategy into practice

Concrete use cases illustrate the strategic transformation. In September 2025, Alibaba Cloud announced significant upgrades to its entire AI stack, including new servers, network technology, distributed storage solutions, and computing clusters. The Qwen AI platform, positioned as a competitor to OpenAI's ChatGPT, reached 10 million downloads within the first week of its public launch. The partnership with Apple to implement AI capabilities in iPhones for the Chinese market demonstrates the technological maturity and regulatory compliance of Alibaba's AI solutions. The cloud business is growing through public cloud products, with AI-related product revenue experiencing triple-digit growth for the ninth consecutive quarter. The Cloud Intelligence Group serves external customers with high-performance infrastructure and value-added applications, resulting in 29 percent revenue growth from external customers. Investments in international data centers in Brazil, France, the Netherlands, Malaysia, Dubai, Mexico, Japan and South Korea are intended to expand the global AI infrastructure network and increase the scaling of international data centers fivefold in the coming years compared to 2022.

The other side of the coin: risks, competitive pressure and regulatory risks.

The transformation is not without significant risks. Free cash flow plummeted by 70 percent, limiting short-term financial flexibility. The international digital commerce business posted an adjusted EBITDA loss of 2.9 billion yuan, compared to a loss of 384 million yuan in the same quarter last year, suggesting heavy investments in AliExpress and Trendio. The Chinese e-commerce market is experiencing intense price competition, putting pressure on margins for all participants, as evidenced by JD.com's 55 percent profit decline. Regulatory risks remain despite recent talks between President Xi Jinping and Jack Ma, as the Chinese government continues to exert tight control over the tech industry. The reliance on AI demand carries the risk of a speculative bubble, although CEO Eddie Wu insists demand is too strong for a bubble to form. Geopolitical tensions between the US and China could restrict access to critical technologies such as semiconductors and hinder expansion plans. The high investments in infrastructure require a continuous increase in demand to justify the return; otherwise, significant write-downs are threatened.

The next stage: Alibaba's path to AI success or a crash into the red

The future outlook depends on several factors. Global demand for AI infrastructure is accelerating, with Alibaba benefiting from China's focus on technological self-sufficiency. Management has indicated that the initial investment of 380 billion yuan may be insufficient and that increased spending is being considered. The expansion of international data centers is expected to outpace the growth rate, reaching five times the capacity in five years compared to 2022. Integrating AI across all business areas, from e-commerce and enterprise applications to consumer apps, is expected to boost efficiency, user engagement, and growth. The strategic partnership with Apple for AI capabilities in China could trigger further international collaborations and strengthen Alibaba's position as a gateway for foreign tech giants into the Chinese market. However, the competitive landscape is intensifying, with Tencent reporting 15 percent revenue growth and Baidu experiencing a seven percent decline. Success hinges on Alibaba's ability to maintain its leading position in China's cloud market, currently holding a 35 percent market share, and translate that into profitable growth.

Why markets value Alibaba's AI vision higher than current profits

The analysis shows that the positive stock reaction to Alibaba's massive profit slump is not market irrationality, but rather a deliberate valuation of long-term growth strategies. Investors are accepting short-term profitability losses because they are convinced by three factors: First, the 34 percent cloud growth and triple-digit AI revenue growth demonstrate that Alibaba is building a dominant position in a fundamental technology trend. Second, revenue exceeds analysts' expectations, signaling operational strength despite investments. Third, Alibaba is following the proven Amazon pattern, where years of infrastructure investment initially depressed profits but later led to market dominance. The 380 billion yuan investment over three years, which exceeds total spending over ten years, is a clear commitment to AI leadership. The reduction in the number of shares through buybacks supports the share price. The partnership with Apple and the 10 million downloads of the Qwen app validate technological maturity. Markets are not buying current profits, but rather the vision of an AI-powered ecosystem that could shape China's technological future. The risks remain substantial, but the reward could be a position as a leading AI infrastructure provider in the world's largest internet economy.

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