Alibaba shares dropped 7% on Friday after a 75% jump in capital spending pushed free cash flow negative, overshadowing a 45% surge in cloud revenue. Baidu, PDD Holdings, and JD.com all posted far smaller moves, showing the reaction was specific to Alibaba's AI spending bill.
Alibaba stock fell 7% to $121.17 in Friday morning trading, reversing Thursday's rally as investors reprice the cost of the company's AI buildout. The stock is down 10% year to date through Thursday's close.
Capex surge flips cash flow negative
Alibaba reported June-quarter results Thursday before the open in a 6-K filing. Revenue rose 9% year over year to just under 269 billion yuan ($40 billion), meeting expectations. Adjusted net income fell 38% to 20.7 billion yuan, below consensus.
Cloud carried the growth story. AI cloud and compute services revenue rose 45% to 48.44 billion yuan ($7.2 billion), a 22-quarter high. AI-related product revenue posted its 12th consecutive quarter of triple-digit growth. However, capital spending rose 75% to 67.68 billion yuan ($10.1 billion) on GPU procurement and higher CPU volume for anticipated AI-agent adoption. That pushed free cash flow to an outflow of 44.7 billion yuan against a positive 18.8 billion yuan a year earlier.
Alibaba CEO Eddie Wu said: "We delivered a strong quarter, driven by the improving commercialization of our full-stack AI capabilities."
A fine and softer domestic sales add pressure
AliExpress absorbed a European Commission fine of 550 million euros ($642 million) levied in late July over Digital Services Act violations. Meanwhile, China e-commerce revenue fell 8% to just under 111 billion yuan ($16.5 billion).
Peers move the other way
Baidu stock rose 2% to $93.98 Friday, as investors treated Alibaba's cloud growth as demand validation without the matching bill. PDD Holdings fell 1% to $88.74. JD.com was unchanged at $29.46. The KraneShares CSI China Internet ETF, for which Alibaba is the largest holding, was flat at $26.78.
Alibaba has committed 380 billion yuan over three years to AI and cloud infrastructure. It had spent 190 billion yuan by the end of the June quarter, meaning heavy capex pressure has more quarters to run.
Source: 24/7 Wall St.
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