Alibaba’s Q2 Revenues Up 5% but Profit Plunges 71% on AI Spending
Alibaba's Q2 fiscal 2026 revenues rose 5% to RMB247.8 billion while non-GAAP earnings plunged 71% and adjusted EBITDA collapsed 78% due to aggressive AI and quick-commerce spending. Despite a 28% six-month share rally and 34% cloud growth, RMB380 billion AI commitments and regulatory headwinds strain profitability and valuation.
1. Q2 Fiscal 2026 Financial Results
Alibaba reported second-quarter fiscal 2026 revenues of RMB247.8 billion, up 5% year-over-year, while non-GAAP diluted earnings fell 71% to RMB4.36 per ADS and adjusted EBITDA dropped 78%, with free cash flow outflow of RMB21.8 billion due to elevated investment spending.
2. Aggressive AI and Quick Commerce Investments
The company committed RMB380 billion over three years to AI and cloud infrastructure, open-sourced nearly 400 Qwen models and saw Cloud Intelligence revenue rise 34%, yet its quick commerce unit, growing revenue 60%, drove sales and marketing costs to RMB66 billion.
3. Share Rally Versus Fundamentals
Despite a 28.3% increase in the past six months, Alibaba’s share performance reflects recovery from lows rather than fundamental strength, with the stock trading at a forward 2.29x price-to-sales multiple versus the industry average of 1.84x.
4. Regulatory and Competitive Outlook
US chip export restrictions and new Chinese e-commerce rules constrain cloud expansion and merchant incentives, while intensifying competition from Amazon AWS, Google Cloud and Microsoft Azure adds pressure on Alibaba’s margin and long-term growth potential.