Alibaba Stock Falls. What Its Earnings Reveal About the State of Play in AI.

Alibaba’s revenue for its second quarter was higher than expected. (Dreamstime)

Key Points

• Alibaba’s revenue reached 247.8 billion yuan ($34.8 billion), exceeding analyst expectations of 243.2 billion yuan.
• The company’s cloud unit revenue increased by 34% year-over-year, with AI-related product revenue showing triple-digit growth.
• Alibaba plans to invest approximately $53 billion into artificial intelligence technology over the next three years.

Alibaba stock fell early Tuesday even as the Chinese e-commerce company reported higher revenue than expected and signaled robust growth in artificial intelligence and cloud computing.

The company’s American depositary receipts, which were up 90% this year through Monday’s close, pointed 0.7% lower in early trading after rising initially in premarket trading. The stock surged 5% in the previous session after Alibaba revealed its relaunched AI chatbot Qwen notched more than 10 million downloads in the first week.

The tech conglomerate’s fiscal second-quarter earnings solidified its AI credentials. Revenue from its cloud unit jumped 34% year over year, while AI-related product revenue achieved triple-digit growth for the ninth consecutive quarter.

Alibaba , which Barron’s recommended in December last year, is making a significant pivot to AI, including plans to invest some $53 billion into the technology in the next three years. It already looks to be paying off.

The company reported revenue of 247.8 billion yuan ($34.8 billion), beating expectations of CNY243.2 billion among analysts polled by FactSet. Adjusted net income fell 72% year over year to CNY10.4 billion ($1.5 billion), but beat estimates of CNY5.8 billion.

The company primarily attributed the drop to its investments in “quick commerce”—a rapid-delivery feature went live at the end of April. Revenue from quick commerce jumped 60% to CNY22.9 billion in the quarter.

Citi analyst Alicia Yap maintained a Buy rating on the stock Tuesday and said that Alibaba’s cloud revenue growth would “likely meet or exceed most investors’ expectation.” She has a $218 price target on the shares, implying a 36% gain from Monday’s closing price.

Write to Callum Keown at callum.keown@dowjones.com