On August 21st, Alibaba-W (09988.HK) shares opened 2.4% higher but quickly reversed course to trade down 1%. This followed the release of the company's fiscal first-quarter 2027 earnings, covering the three months ended June 30, 2026, which showed group revenue up 9% year-on-year to RMB 268.953 billion, but operating profit down 57% to RMB 15.161 billion due to substantial AI-related capital expenditure.
Quarterly capital expenditure surged 75% to RMB 67.7 billion. Despite the profit pressure from heavy AI spending, Alibaba Cloud's external commercialization revenue accelerated by 45%, marking the fastest growth in 22 quarters, while AI-related product revenue posted triple-digit year-on-year growth for the twelfth consecutive quarter.
AI Compute Capex Payback in Three Years: Alibaba's US-Listed Shares Reverse to Gains
Alibaba's US-listed shares initially fell more than 5% in overnight trading, but rallied on management's optimistic statements about the high certainty of AI commercialization returns, eventually closing up over 1%. CEO Eddie Wu stated that AI has become the core engine accelerating Alibaba Cloud's growth, with annualized revenue from AI-related products expected to approach US$10 billion next quarter. He expressed strong confidence in accelerating the goal of reaching US$100 billion in annual cloud external revenue by 2030.
Wu also emphasized the extremely high certainty of returns on AI compute capex investments, noting that capital expenditure could be recouped within three years. Given the improving gross margins of AI-related products and the increasing proportion of self-developed chips, the payback period could potentially shorten to 2.5 or even 2 years. Regarding in-house chip development, T-Head Semiconductor covers GPUs, CPUs, and network chips, including the latest-generation AI processor Zhenwu M890, which has achieved large-scale commercial deployment across more than 650 external customers in over 20 industries including autonomous driving, internet, and financial services via Alibaba Cloud.
Wu revealed that T-Head's second-generation domestic chips will begin tape-out and production in the second half of this year, and will be fully capable of replacing large-scale model training. From compute power, chips, and models to AI applications, Alibaba's AI growth is accelerating across the board.
Only Player with Full-Stack Capabilities: Is Alibaba's AI Story Undervalued?
Industry analysts point out that the market still tends to view Alibaba as an e-commerce company, focusing on consumption slowdown and competitive pressures. However, the company is building an AI ecosystem covering models, cloud platforms, and industry solutions. Analysts at Zheshang Securities highlight that Alibaba Cloud was the biggest highlight of the quarter, entering a phase of "AI-driven accelerated growth plus profit improvement" with both revenue expansion and margin enhancement.
The capex exceeding expectations is a market focus, but this quarter's peak should not be simply annualized. The spending is not disorderly expansion but rather "demand-driven pre-construction." The previously announced three-year RMB 380 billion AI investment plan is progressing as expected. If Alibaba Cloud maintains growth above 40% and MaaS ARR continues to materialize, market attention could shift from short-term profit pressure to broader industry chain prosperity.
CICC previously noted that Alibaba Cloud is the only cloud provider in China with simultaneous scale advantages, self-developed chips, and first-tier proprietary models. As the country's largest cloud vendor, Alibaba Cloud has achieved economies of scale in compute capacity, with T-Head's self-developed chips and the Qwen model ranking in the first tier. The joint optimization of chips, inference platforms, and models effectively improves inference efficiency, and CICC is optimistic about the trends of accelerating cloud revenue and improving profit margins.
Relevant ETF: The Hong Kong Internet ETF Huabao (513770) and its feeder funds (Class A: 017125; Class C: 017126) passively track the CSI HK Connect Internet Index, with heavyweight constituents including Alibaba-W, Tencent Holdings, and other tech giants alongside AI application companies across various sectors. Alibaba currently holds a 16.92% weight in the index (as of August 20, 2026), with the top ten constituents collectively accounting for over 80% of the total weight, demonstrating clear leadership advantages. The ETF supports intraday T+0 trading with strong liquidity.
Huayuan Securities believes that leading internet platform companies continue to strengthen AI investment while advancing the exploration of more AI products. The platform advantages of leading companies are reflected in their fundamental earnings resilience. Meanwhile, the R&D and investment in AI underlying technology by major internet companies, along with the implementation and execution of AI application products, remain the core focus of industry development and market trading. The firm recommends continued attention to the strategic value of proactive internal organizational restructuring among leading companies, as well as their medium-to-long-term narratives and execution progress in areas such as AI.
Risk Reminder
Market volatility may be significant in the near term, and short-term gains or losses do not predict future performance. Investors should make rational investment decisions based on their own capital conditions and risk tolerance, with careful attention to position sizing and risk management. Data sources include the Shanghai and Shenzhen stock exchanges. Institutional views are sourced from: Zheshang Securities August 21, 2025 "Alibaba Cloud AI Accelerated Growth and Capex Expansion"; CICC August 7, 2026 "Favorable View on Alibaba-W (09988) Cloud Revenue Acceleration and Margin Improvement Trends"; Huayuan Securities August 18, 2026 "Model + Harness Iteration Strengthens Agent Capabilities."
ETF fee disclosures: When investors subscribe for or redeem fund shares, the subscription/redemption agency may charge commissions of up to 0.5%, which includes fees charged by stock exchanges and registration institutions. For the feeder fund fee disclosures: For Huabao CSI HK Connect Internet ETF Feeder Fund (Class A), the subscription fee rate (front-end) is RMB 1,000 per transaction for subscription amounts above RMB 2 million, 0.6% for amounts between RMB 1 million (inclusive) and RMB 2 million, and 1% for amounts below RMB 1 million. The redemption fee rate is 1.5% for holding periods of less than 7 days and 0% for holding periods of 7 days (inclusive) or more. No sales service fee is charged. For Class C shares of the Huabao CSI HK Connect Internet ETF Feeder Fund, no subscription fee is charged, the redemption fee rate is 1.5% for holding periods of less than 7 days and 0% for holding periods of 7 days (inclusive) or more, and the sales service fee is 0.3%.
Risk warnings: The Hong Kong Internet ETF Huabao and its feeder funds passively track the CSI HK Connect Internet Index, which has a base date of December 30, 2016, and was launched on January 11, 2021. The index's returns over the past five complete years are: 2025, 27.02%; 2024, 23.04%; 2023, -24.74%; 2022, -23.01%; 2021, -36.61%. The volatility over the past five complete years is: 2025, 33.60%; 2024, 43.49%; 2023, 32.09%; 2022, 49.01%; 2021, 38.72%. Index constituent composition is adjusted periodically according to the index compilation rules, and backtested historical performance does not indicate future index performance. The index constituents mentioned in this article are for display purposes only, and individual stock descriptions do not constitute investment advice in any form, nor do they represent the holdings or trading activities of any fund under the fund manager. The fund manager assesses this fund's risk level as R4 (medium-high risk), suitable for aggressive (C4) and above investors. Any information appearing in this article (including but not limited to individual stocks, comments, forecasts, charts, indicators, theories, and any form of expression) is for reference only. Investors must be responsible for their own independent investment decisions. Furthermore, any views, analyses, or forecasts in this article do not constitute investment advice of any form to readers, nor do they assume any responsibility for direct or indirect losses arising from the use of the content herein. The performance of other funds managed by the fund manager does not constitute a guarantee of fund performance. Past fund performance does not represent future performance. Fund investment carries risks, and investors should invest cautiously.