Alibaba posted a stronger-than-expected start to its fiscal year on Thursday, but investors focused on a profit collapse that undercut the upbeat top-line numbers. In the fiscal first quarter the Chinese tech giant recorded revenue of 268.95 billion yuan (about $40 billion), up 9% year-over-year and just ahead of the 268.88 billion yuan analysts had forecast. It’s Alibaba’s fastest quarterly sales growth in roughly three years — and nearly all of that momentum is coming from one place: cloud and AI. Alibaba Cloud accelerated sharply, with external revenue growth jumping to 45%. AI-related product revenue reached 12.38 billion yuan ($1.82 billion), marking its 12th consecutive quarter of triple-digit year-over-year growth, CEO Eddie Wu said, crediting “improving commercialization” of Alibaba’s full-stack AI push. But building that AI muscle is costly: capital expenditures surged 75% to 67.7 billion yuan ($10 billion) as Alibaba invests in chips and expanding compute capacity to meet soaring AI demand. The cash impact was stark — free cash flow swung to an outflow of more than $6.6 billion for the quarter, per Bloomberg. Wall Street’s verdict was mixed. U.S.-listed Alibaba shares slid roughly 5% after the opening bell before clawing back some losses by midday as investors digested the gap between booming AI-driven revenue and shrinking profits (quarterly profit fell about three-quarters). Alibaba’s results underline a clear strategic shift from model training to monetized distribution. The company has moved to commercialize its Qwen family — most notably releasing Qwen 3.8-Max’s weights publicly at scale this month while pulling back free access to some services like the Qwen Code coding agent in April. The strategy now includes international distribution: Apple is pairing its in-house model with Alibaba’s Qwen to power Apple Intelligence on Chinese iPhones, a landmark arrangement that could make Apple the first foreign firm permitted to run a proprietary AI model inside China. For crypto and Web3-focused readers, one metric to watch is how open-weight models are reshaping token flows and inference markets: Chinese open-weight models’ share of tokens generated on OpenRouter leapt from under 2% in late 2024 to about 61% by mid-2026. Alibaba’s bet on selling AI services and compute rather than just training models is driving revenue — but rising capex and negative free cash flow are pressuring near-term profits, keeping investor nerves raw even as cloud and AI accelerate. Read more AI-generated news on: undefined/news