For the past year, Alibaba's earnings reports have revolved around one central question: when will massive capital investments finally translate into tangible business returns?

In the first quarter of fiscal 2027, reported on August 20, Alibaba generated revenue of RMB 268.953 billion, up 9% year-over-year. Adjusted EBITA came in at RMB 27.329 billion, down 30%, while net profit fell 75% to RMB 10.444 billion.

Capital expenditure (CapEx) climbed further to RMB 67.678 billion in the quarter, a 75% increase year-over-year, with free cash flow net outflow widening to RMB 44.670 billion.

Under its previously announced plan, Alibaba intends to invest RMB 380 billion in AI infrastructure over three years. To date, cumulative investment stands at approximately RMB 190 billion, meaning the plan is roughly halfway through.

However, this quarter, both of Alibaba's key investment areas—AI infrastructure and instant retail—began to show clearer paths to returns.

Alibaba Cloud's AI cloud and computing services revenue grew 45% year-over-year, with adjusted EBITA up 133% and profit margin improving to 11.6%.

Management disclosed for the first time a payback model for AI computing investments: based on current AI product gross margin levels, related CapEx is expected to break even within three years.

On the instant retail front, Alibaba has recalibrated its e-commerce reporting structure, explicitly stating that the instant retail segment is projected to achieve overall profitability by fiscal 2029, and in the long term, could contribute 30% of total platform GMV.

With computing power investments now mapped to a capital recovery cycle and instant retail gaining a clear profitability timeline, Alibaba's heavy-spending strategy appears to be entering a new phase of validation.

The Three-Year Payback Math on Computing Power

The 45% growth in Alibaba Cloud itself is not a particularly large surprise. Compared with revenue, the change on the profit side deserves more attention.

In this quarter, AI cloud and computing services revenue reached RMB 48.437 billion, up 45% year-over-year. Adjusted EBITA hit RMB 5.628 billion, up 133%, with profit margin rising to 11.6%.

More importantly, Alibaba provided a relatively clear capital recovery period for AI computing investments during the earnings call.

Eddie Wu, Chairman and CEO of Alibaba Group, stated on the call that based on the current average gross margin of AI products, AI-related CapEx "can achieve payback within three years."

"If we consider our current AI product gross margin levels, under the condition of three-year CapEx payback, theoretically keeping our growth rate below 33% would allow us to generate positive cash flow," Wu said.

The "three-year payback" here primarily refers to the capital recovery of AI computing assets. The formula can be applied as follows: payback period ≈ unit computing investment ÷ unit computing's annual gross profit contribution.

Management believes that at current AI product gross margin levels, this asset-heavy model theoretically already has the conditions to achieve cash flow balance—it's just that Alibaba is not choosing to do so at this stage.

AI remains in the early stages of industry development. Compared with releasing cash flow ahead of schedule, what matters more is continuing to increase computing supply and maintaining high-speed growth.

Therefore, the company has chosen to reinvest incremental cash into infrastructure rather than deliberately pushing business growth down to a cash flow breakeven level.

A key premise behind Alibaba's confidence in this model is the extended actual usage cycle of computing assets.

Wu cited examples: the V100 chips purchased by Alibaba data centers in 2018 and the A100 chips bought in 2020 are still running at near full capacity. The actual service life of AI computing assets could be significantly longer than the theoretical depreciation period, allowing them to continue generating cash flow after initial capital recovery is complete.

Of course, physically remaining operational does not mean different generations of GPUs hold equal economic value. As chip efficiency rapidly iterates, the unit price and profitability of older computing power may still decline.

Therefore, for Alibaba, what matters most is still continuously improving the investment efficiency of new computing capacity.

There are currently three main pathways.

First, raising the gross margin of AI products. Management clearly stated during the earnings call that continuing to advance frontier model capabilities and expanding high-margin MaaS business are important ways to improve AI product gross margins.

As of August, MaaS business ARR, including Bailian, had already exceeded RMB 16 billion. Alibaba maintains its target of exceeding RMB 30 billion by year-end. Higher-margin revenue streams are rapidly scaling.

Second, reducing the CapEx required to obtain equivalent computing power.

T-Head's self-developed chip portfolio now covers GPUs, CPUs, and network chips. As self-developed chip production capacity ramps up, Alibaba hopes to increase the proportion of self-developed chips within its data centers, reducing dependence on external commercial chip purchases and thereby lowering the initial CapEx needed to secure the same computing power.

Third, reducing the funds Alibaba itself needs to front-load.

In addition to co-building AI computing centers with partners, the company is supplementing computing capacity through operating expenses such as leasing, and has begun collecting customer prepayments for certain cloud computing services.

If customer prepayments can cover or even exceed the prepayments Alibaba pays to suppliers, the impact of new business on free cash flow will further decline.

Ultimately, what Alibaba hopes to achieve is a state where revenue growth outpaces new capacity growth.

Market-circulated communications from after the earnings call indicate that management believes sell-side estimates of the current ROIC on AI investments may still be conservative. Alibaba Cloud revenue growth in the September quarter could potentially exceed 50%, with further acceleration possible in the December and March quarters that follow.

Instant Retail: Moving Toward a "Second Growth Curve"?

As the investment that has most affected Alibaba's profit performance over recent quarters, the accounting for instant retail is also becoming clearer.

This quarter, Alibaba restructured its e-commerce reporting segments, consolidating China e-commerce, China instant retail, international e-commerce, and global B2B into the newly formed Alibaba E-commerce Group.

The group generated revenue of RMB 205.862 billion this quarter, up 4% year-over-year, with adjusted EBITA of RMB 39.749 billion, down 1%.

Among these, China instant retail was disclosed for the first time under a relatively complete business scope, with revenue reaching RMB 53.295 billion, up 45% year-over-year. This includes Taobao Flash Purchase, Hema, and Tmall Supermarket's instant delivery business, with growth mainly driven by Taobao Flash Purchase and Hema.

Traditional e-commerce, Alibaba's profit cornerstone, continues to face severe challenges.

Customer management revenue (CMR) declined 7% year-over-year under reported standards. After excluding the impact of marketing subsidies as revenue offsets, CMR on a like-for-like basis grew 1%.

With shelf-based e-commerce entering a stage of stock competition, instant retail is now carrying Alibaba's expectations for finding new growth.

Jiang Fan, CEO of Alibaba E-commerce Group, gave a clearer long-term target for the first time on the earnings call: "The instant retail segment is expected to achieve overall profitability in fiscal 2029. In the long run, instant retail is expected to contribute 30% of the platform's total GMV, becoming the second growth curve for the e-commerce segment."

Hema, newly included in the e-commerce group's reporting scope, is already a relatively mature and continuously expanding instant retail asset.

In fiscal 2026, Hema's GMV exceeded RMB 107 billion, with online transactions accounting for more than 60% of Hema Fresh's GMV. Hema has also achieved positive adjusted EBITA for two consecutive full years.

Within Alibaba's broader instant retail framework, Hema's value lies in complementing the product and fulfillment capabilities needed for non-restaurant instant retail.

This quarter, Hema maintained strong year-over-year growth in both orders and revenue, benefiting on one hand from expansion into emerging cities and counties, and on the other hand from deepened cooperation with Taobao Flash Purchase, providing differentiated supply in daily necessities and fresh produce.

Jiang Fan stated that going forward, the company will "accelerate the integration of Hema and Tmall Supermarket's related segments, develop instant retail for non-restaurant categories, and particularly accelerate the development of front warehouses."

He expects non-restaurant instant retail transaction volume to surpass the restaurant category in the next fiscal year, further driving physical goods transactions across the broader e-commerce ecosystem.

Compared with restaurant orders, fresh produce, daily necessities, and fast-moving consumer goods orders typically have higher average order values, supplementing consumer demand outside lunch and dinner time windows, thereby improving the utilization efficiency of warehouses, riders, and fulfillment networks.

At the same time, the value of instant retail is not only reflected in per-order profitability. Alibaba still hopes that the high-frequency consumption scenarios brought by instant retail will further boost Taobao user activity and feed back into platform monetization.

The synergy between Hema, Tmall Supermarket, and Taobao Flash Purchase will not automatically translate into profitability.

The fiscal 2029 target ultimately depends on whether Taobao Flash Purchase's unit economics can continue to improve, and whether order growth, product mix optimization, and fulfillment efficiency gains can cover incremental costs in warehousing and delivery.

But compared with the past, when the market could only see the scale of investment, this quarter Alibaba has begun to draw a clearer roadmap for instant retail's financial picture.

AI still requires continued data center construction, and Qwen continues to bear substantial inference costs. Taobao Flash Purchase is also still several years away from overall profitability.

But at least for now, Alibaba's two most-watched long-term investments have for the first time acquired explicit return coordinates: AI corresponds to a capital recovery cycle of around three years, and instant retail corresponds to a profitability milestone in fiscal 2029.

What the market will truly focus on next is no longer just how much Alibaba is willing to spend, but whether these investments can be recovered, one by one, according to the timeline management has laid out.