Alibaba Group reported March quarter and fiscal 2026 results Wednesday, with cloud revenue beating expectations but the company swinging to an operating loss as it increased spending on AI infrastructure and quick commerce subsidies.
Revenue Misses as AI Spending Bites
Quarterly revenue reached RMB243.38 billion (US$35.28 billion), a 3% increase year over year. That came in below the Wall Street consensus of roughly RMB247 billion.
Stripped of the divested Sun Art and Intime retail businesses, revenue on a like-for-like basis would have grown 11% year over year.
The headline miss, however, was not the most striking number. Alibaba reported an operating loss of RMB848 million for the quarter, a sharp reversal from the RMB28.47 billion operating profit it posted in the same period a year earlier.
The company’s aggressive push into AI and cloud infrastructure drove that contraction in core profitability.
Cloud Breaks Out as AI Gains Traction
Cloud Intelligence Group generated RMB41.63 billion (US$6.04 billion), a 38% increase from the same quarter last year. That beat analyst expectations and continued a string of quarterly accelerations.
External cloud revenue growth hit 40% year over year, with AI-related products accounting for 30% of that revenue, according to Alibaba’s official results release.
CEO Eddie Wu said in the earnings statement that the company’s AI investments had moved “from incubation to commercialization at scale,” pointing to the Qwen large language model’s progress in reasoning and coding.
Cash Flow Turns Deeply Negative
The cost of that growth is stark. For the full fiscal year 2026, free cash flow was an outflow of RMB46.61 billion (US$6.76 billion), compared to an inflow of RMB73.87 billion in fiscal year 2025.
Alibaba attributed the decline to investment in quick commerce and an increase in cloud infrastructure expenditure.
Taobao Instant Commerce, rebranded from Ele.me during the December quarter, expanded order volumes but at the expense of margin discipline, with the company channeling billions in consumer subsidies through the Qwen app during the Lunar New Year period.
E-Commerce Revenue Slips
The domestic e-commerce picture disappointed. Revenue from the e-commerce business was RMB96.29 billion (US$13.96 billion), a 1% decline compared to the same quarter of 2025.
Stock Falls Harder Than Expected
BABA shares opened down roughly 3% on May 13, 2026, underperforming the broader software and IT services sector, which declined about 1.3%.
The stock had entered the session down about 6% year to date, trading near $136.88 ahead of the open.
Analysts: Cloud Story Credible, Profitability Now the Test
The analyst community remains broadly constructive on the AI thesis but is watching margins closely.
Barclays trimmed its price target to $186 in April 2026 but maintained its bullish stance, citing conviction in Alibaba’s AI investment thesis.
The broader consensus price target sits near $189, implying roughly 37.7% upside from current levels.
Bears, however, point to the company’s persistent earnings misses. Alibaba has beaten the Zacks consensus estimate in only one of the trailing four quarters, with an average negative earnings surprise of 10.28%.
What Comes Next
Alibaba declared an annual cash dividend. The payment date is expected on or around July 6, 2026 for holders of ordinary shares and on or around July 13, 2026 for holders of American depositary shares.
The next earnings conference call will cover the June quarter, with no date yet confirmed. Investors will watch whether cloud’s 38-40% external growth rate holds, and whether quick commerce unit economics show measurable improvement.
Management has signaled intent to scale AI investments beyond the existing RMB380 billion three-year framework, which means free cash flow pressure is unlikely to ease in the near term.
