The 75% net profit decline dominated headlines and was attributed entirely to AI spending. A detailed reading of the filing reveals a different picture: less than one-third of the decline stems from operating investment, while cloud computing profit itself more than doubled. But the reported figures exclude a larger number that has yet to be recognised.
Alibaba reported results for the quarter ended 30 June 2026, with revenue of 268,953 million Chinese yuan, up 9%, and net profit of 10,444 million yuan, down from 42,382 million yuan, a decline of 75%. Media coverage treated the decline as the cost of AI spending. A full breakdown of the income statement does not support that reading.
First — less than one-third of the decline is operational. Of the total decline of 31,938 million yuan, 62% comes from operating income, 26% from lower investment gains, and 12% from higher income tax. The operating item itself includes goodwill impairment (Goodwill Impairment), namely a reduction in the excess value recorded on acquiring a company, of 4,458 million yuan, and a European fine of 550 million euros — neither is related to AI infrastructure.
Second — cloud computing did not record a loss; it more than doubled its profit. Adjusted operating profit for the cloud computing and computing segment rose from 2,419 to 5,628 million yuan, growth of 133%, while its margin improved from 7.2% to 11.6%. The loss is concentrated in another segment — AI labs and applications — which lost 13,861 million yuan, owing to the cost of running the free Qwen model to answer user requests, known as inference cost (Inference Cost). This segment alone accounts for 92% of the decline in adjusted operating profit.
Third — depreciation has arrived, but on a smaller scale than claimed. Depreciation rose from 6,891 to 11,814 million yuan, an increase of 71%, compared with capital expenditure (Capital Expenditure (Capex)) growth of 75%. The increase in depreciation represents 43% of the decline in adjusted operating profit, but no more than 15% of the full net profit decline.
Fourth — the largest figure has yet to be recognised. Depreciation recorded this quarter equals only 17.5% of capital expenditure in the same quarter. Across the global group, comprising Amazon, Microsoft, Alphabet, Meta and Oracle, 464.6 billion dollars was spent on capital assets in one fiscal year, against recorded depreciation of only 122.9 billion dollars. That means about 342 billion dollars of one year’s spending has not yet reached any income statement.
Fifth — the effect of depreciation does not extend across the entire group: no major US company in this group saw its operating margin contract. Microsoft at 46.8%, Meta at 41.4%, Oracle at 30.6%, and Amazon at 11.2% — all are flat or higher. The bill reached Alibaba first for two compounding reasons unrelated to accounting quality: its revenue grew 9% while its capital expenditure grew 75%, and it depreciates computing equipment over 3 to 5 years — the shortest useful life in the group.
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