Alibaba Reports Lower-Than-Expected Profit, Eyes AI and Cloud Growth
Alibaba Group Holding Ltd. (09988.HK) reported a 67.3% decline in non-GAAP net profit for the December 2025 quarter, falling short of expectations, according to company filings. The company’s adjusted net profit reached 16.71 billion yuan. Despite the earnings miss, Alibaba is focusing on expanding its cloud and artificial intelligence (AI) businesses, with CEO Eddie Wu projecting over $100 billion in combined commercial revenue from these sectors within the next five years.
The results come as Alibaba continues to navigate a complex market environment and strategic shifts. Revenue increased by 2% year-over-year, but the pace of growth remains a key focus for investors. The company’s stock price fell 4.6% in pre-market trading in the U.S.
A significant component of Alibaba’s AI strategy is its T-Head division, which develops AI chips for data centers, artificial intelligence, and the Internet of Things. The company has delivered a cumulative 470,000 self-developed GPU chips as of February 2026, with over 60% of those chips serving external commercial customers. This demonstrates a growing demand for Alibaba’s chip technology beyond its internal needs.
Looking ahead, Alibaba is exploring a potential initial public offering (IPO) for T-Head, with a possible valuation between $25 billion and $62 billion, according to a report by Morgan Stanley. The company may first restructure T-Head as a partially employee-owned entity before pursuing the IPO, though the timing remains uncertain. This move signals a renewed consideration of unlocking value through capital markets.
However, analysts caution that the IPO process could take over a year, given the need to strengthen T-Head’s independence, expand its external client base, and establish clearer economic relationships. Alibaba has previously paused or canceled planned spin-offs, including its cloud business in November 2023 due to uncertainties related to U.S. Chip export restrictions, and the Cainiao logistics unit in March 2024, opting instead for a share buyback.
The potential spin-off of T-Head is being viewed as a short-term sentiment catalyst rather than an immediate driver of earnings, according to Morgan Stanley. Investors and regulators will likely scrutinize the division’s independence, given its current reliance on the parent company.
Alibaba’s focus on cloud and AI is too reflected in its MaaS (Model-as-a-Service) platform, where token consumption has increased sixfold in the past three months. The company anticipates that commercial MaaS revenue will become its largest revenue product within Alibaba Cloud.
