Shares of Alibaba Group Holding fell 6.67%, or $8.71, to $121.82 as of 10:00 a.m. EDT Friday, extending a steep two-day decline that began after the Chinese e-commerce and cloud computing giant reported a 75% plunge in quarterly profit tied to aggressive spending on artificial intelligence infrastructure.

Alibaba’s U.S.-listed shares initially fell roughly 5% Thursday after the company reported net income of 10.54 billion yuan, or approximately $1.55 billion, for its fiscal first quarter ended June 30, down 76% from the same period a year earlier, according to Quartz. That decline followed an even sharper drop cited by other outlets; Bloomberg and the Washington Post both reported the profit plunge at more than 75%, with figures ranging between 10.4 billion and 10.54 billion yuan depending on the specific accounting measure cited.

The steep profit decline came despite solid overall revenue growth. Alibaba reported quarterly revenue of 268.95 billion yuan, or roughly $39.64 billion, up 9% year over year and slightly ahead of the 268.88 billion yuan consensus estimate compiled by LSEG, according to CNBC. Non-GAAP net income, which strips out share-based compensation, investment gains and losses and certain other items, fell 38% to 20.72 billion yuan, or about $3.05 billion, while adjusted EBITA declined 30% to 27.33 billion yuan, or roughly $4.03 billion, according to Quartz.

The primary driver behind the profit collapse was a dramatic increase in capital spending tied to artificial intelligence infrastructure. Capital expenditures reached 67.68 billion yuan, or nearly $10 billion, a 75% increase from the same period a year earlier, according to multiple outlets. The company attributed the spending surge to a combination of factors, including uneven timing of customer purchases, an expansion of CPU-compute capacity, and rising prices across a broad range of chip components, according to CNBC. Free cash flow for the quarter registered an outflow of 44.67 billion yuan, or approximately $6.58 billion, compared with a smaller outflow of 18.82 billion yuan during the same period last year, according to Quartz.

Alibaba’s cloud computing business, the segment most directly tied to its AI ambitions, showed strong underlying growth even as the broader company’s profitability suffered. Cloud revenue rose 45% to 48.4 billion yuan, according to Briefs, with AI-related products delivering triple-digit percentage growth for the twelfth consecutive quarter, according to Caixin Global. Alibaba’s annualized recurring revenue from model and application services surpassed 16 billion yuan, the company disclosed, and it separately opened public testing of QwenWork, a new enterprise AI agent product.

The company’s core e-commerce business, by contrast, delivered more mixed results and contributed to the broader earnings pressure. According to Caixin Global, revenue from Alibaba’s China e-commerce business fell 8% year over year to 110.9 billion yuan, while international e-commerce revenue declined 1% to 27.8 billion yuan. China Quick Commerce revenue, however, surged 45% to 53.30 billion yuan, according to Quartz, reflecting continued strong growth in that faster-delivery segment even as Alibaba’s more traditional e-commerce operations contracted.

Bloomberg’s Luz Ding characterized the results as reflecting a company aggressively defending its position within an intensely competitive global AI landscape, describing Alibaba as having “ratcheted up quarterly capital spending to almost $10 billion” to safeguard its standing in that arena. The report noted Alibaba’s shares fell more than 4% in premarket trading Thursday in immediate reaction to the results.

Alibaba Chief Executive Officer Eddie Wu sought to reassure investors that the heavy spending was producing tangible results despite the near-term profit hit. According to Advisor Perspectives, citing Bloomberg, Wu stressed on Thursday that the company’s AI investments were bearing fruit, with Alibaba expecting annualized revenue from AI products to approach $10 billion in the current quarter, up from approximately $7.3 billion during the April-to-June period.

Alibaba’s quarterly results follow an even more difficult prior quarter, during which the company posted adjusted net income of just 86 million yuan and recorded its first operating loss since 2021, according to Quartz, as spending on AI infrastructure and quick commerce delivery weighed heavily on earnings at that time. In connection with those earlier results, Alibaba committed to reaching $100 billion in combined annual revenue from its cloud and AI businesses within five years, according to Bloomberg.

Analyst reaction to Thursday’s results reflected a degree of caution regarding near-term earnings pressure even as most maintained a broadly constructive long-term view of the company’s AI strategy. According to GuruFocus, adjusted earnings landed at 8.52 yuan per American depositary share, roughly 19% below the 10.53-yuan consensus estimate analysts had projected. GuruFocus also noted that at Thursday’s closing price of $127.01, Alibaba was trading approximately 4.76% above its calculated GF Value estimate of $121.24, suggesting the stock had already priced in a meaningful degree of optimism regarding the company’s AI-driven growth prospects even as its near-term profitability absorbed the cost of that strategic bet.

Commentary from Briefs characterized the market’s reaction as reflecting genuine investor uncertainty about the timeline for AI investments to translate into meaningful profit expansion. “While cloud revenue growth of 45% shows the strategy is gaining traction, the market’s reaction indicates skepticism about when these investments will translate into meaningful profit expansion,” the outlet noted, adding that the coming quarters would prove critical in determining whether Alibaba’s continued heavy AI spending ultimately pays off or instead weighs on returns for an extended period should demand growth slow or competitive pressure intensify.

Alibaba’s competitive position within China’s rapidly evolving AI landscape remains a significant factor shaping investor sentiment toward the stock. According to Advisor Perspectives, Alibaba’s flagship Qwen AI model family became the world’s most popular open model family this year, cementing the company’s status as a global artificial intelligence frontrunner. The company’s Qwen consumer app, an all-in-one AI assistant capable of handling tasks including shopping and payments, is expected to compete directly with a new AI agent product on rival Tencent’s WeChat platform in the coming quarters, as well as against ByteDance’s popular Doubao AI assistant, which introduced its own subscription plan earlier this year.

With Alibaba’s 88VIP membership base growing by double digits year over year to approximately 64 million members as of June 30, according to Quartz, and the company continuing to project substantial near-term growth in AI product revenue, investors are likely to remain focused in the coming quarters on whether Alibaba’s aggressive capital spending trajectory begins showing clearer signs of translating into improved overall profitability, or whether the company’s continued heavy investment in AI infrastructure will keep pressuring earnings for an extended period as it works to maintain its competitive standing against both domestic Chinese rivals and global AI leaders.