Loss at Alibaba’s AI division quadruples, Qwen embraced
In the second quarter, Alibaba posted an operating profit that was 57% lower than a year earlier. The cause: heavy AI investments, such as in the Qwen model.
The AI labs & applications segment, which includes model development and the consumer app Qwen, saw its loss quadruple in a year to two billion dollars. Revenue, on the other hand, rose by 16%.
The Chinese group is reporting for the first time under a new classification. As a result, the detailed breakdown for international e-commerce has disappeared. All we now know is that AliExpress’s revenue fell by 1%.
Two other new accounting branches are AI cloud & compute services on the one hand and AI labs & applications on the other. The latter includes, among other things, Qwen Consumer and the QwenWork platform for businesses. That split makes it clear that the cloud division is earning serious money from AI, while the labs and applications side is still very much in the investment phase.
At the beginning of August, Alibaba released Qwen3.8-Max, less than three months after the previous version. Like several other major Chinese model makers, Qwen has open weights. Put simply, users can download it and reconfigure it to their own taste. That is not possible with OpenAI, Claude and Gemini. For Chinese model makers this is a deliberate strategic choice aimed at securing a position in the global market.
On the consumer side, Qwen is increasingly leaning on Alibaba’s own commerce platforms. The app is linked to Taobao, Tmall and Taobao Instant Commerce. Alibaba reports that 250 million users have had an AI-driven shopping experience for the first time via the built-in agentic functions. Since May, the Qwen Shopping Assistant has been live. It is meant to cover the entire journey from inspiration to aftersales. There are other AI features for sellers: tools for listings, advertising and customer service. AI as the lubricant for both sides of the marketplace.
To feed its AI ambitions, Alibaba has sharply increased investment in AI infrastructure. Capital expenditure came to $10 billion (up 75%). Cash flow was already $2.8 billion negative last year. This year it has more than doubled.
The pressure on the group’s operating profit as a whole is not only due to AI investments, incidentally. A goodwill impairment also played a role. And the European Union imposed a fine of €550 million on Alibaba under the Digital Services Act. Both items are one-offs.
Group profit (EBITDA) fell to $4 billion dollars on revenue of $40 billion.
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