Alibaba Group Holding Ltd. has reported better-than-anticipated earnings for the june quarter, buoyed by robust growth in its cloud computing division and a resurgence in its e-commerce operations.

Despite exceeding profit expectations, the Chinese tech giant’s revenue fell short of analyst projections.

Following an initial dip, Alibaba’s stock experienced a surge of over 3% in premarket trading in the U.S.

Key figures from Alibaba’s fiscal first quarter, which concluded in June, compared against LSEG estimates, are as follows:

• Revenue: 247.65 billion Chinese yuan ($34.6 billion), versus 252.9 billion yuan expected.
• Net income: 43.11 billion yuan, compared with 28.5 billion yuan expected.

The company’s revenue saw a 2% year-on-year increase, while net income jumped by 78%. Alibaba attributed this profit surge to gains from certain equity investments and the divestiture of Trendyol, a Turkish e-commerce firm. These gains were partially offset by a decrease in income from operations.

Though,excluding these investment gains,Alibaba’s net income would have decreased by 18% year-on-year,reflecting ongoing investments in China’s fiercely competitive instant commerce sector.

Alibaba faces the challenge of balancing investments in areas like artificial intelligence and innovative e-commerce models while demonstrating sustained growth in China’s competitive market.To date, investors have responded positively, driving a 40% rally in Alibaba’s U.S.-listed stock this year.

This positive momentum is partly attributable to the continued acceleration of growth in its core cloud computing division, as well as improvements in both its domestic and international e-commerce businesses.

Cloud Computing Drives Growth

“Driven by robust AI demand, Cloud Intelligence Group experienced accelerated revenue growth…”

The cloud computing sector emerged as a significant highlight in Alibaba’s recent performance.

Alibaba reported that the division’s revenue reached 33.4 billion yuan, marking a 26% year-on-year increase.This growth rate surpassed the 18% recorded in the previous quarter. Alibaba’s cloud unit is considered crucial for the company’s efforts to monetize artificial intelligence, similar to strategies employed by Microsoft and Google.

According to Alibaba CEO Eddie Wu, the Cloud Intelligence Group experienced accelerated revenue growth driven by robust AI demand, with AI-related product revenue now constituting a significant portion of revenue from external customers.

Investors are keenly observing Alibaba’s investments in artificial intelligence, where it has established itself as a major global player. The company has aggressively launched various AI models and is offering services through its cloud computing division.

While Alibaba has focused on open-source AI, allowing developers to freely use and build upon its models, it also commercializes AI services through its cloud unit.

Alibaba reported that AI-related product revenue has maintained triple-digit year-over-year growth for the eighth consecutive quarter.

Adjusted earnings before interest, taxes, and amortization (EBITA), a measure of profitability, jumped 26% year-on-year in the cloud unit.

Alibaba shares listed in New York have risen by over 40% this year, fueled by improved revenue growth in its core China e-commerce business and the acceleration of its cloud computing division.

The company is navigating economic uncertainty in China, which experienced a slowdown in momentum in July. Earlier in the year, Beijing introduced initiatives to stimulate consumption.

E-Commerce ‘Speedy Commerce’ Battles

Alibaba’s core e-commerce business, which accounts for over 50% of its revenue, presented mixed results.

revenue increased by 10% year-on-year to 19.6 billion yuan.Customer management revenue (CMR), derived from selling marketing and other services to merchants on the platform, also rose by 10%. CMR constitutes the majority of e-commerce revenue.

Though, adjusted earnings in this division decreased by 21% on an annual basis during the quarter. This decline is attributed to Alibaba’s substantial investments in quick or instant commerce, a feature introduced on taobao, one of Alibaba’s primary Chinese e-commerce apps, offering deliveries of select products within an hour in China.

Competition in China is fierce, involving rivals such as food delivery giant meituan and JD.com. This rivalry is already impacting some firms, with Meituan recently reporting an 89% plunge in second-quarter adjusted net profit.

Alibaba’s quick commerce division generated revenue exceeding 14.8 billion yuan, or $2 billion, representing a 12% year-on-year increase.

Investors seem comfortable with Alibaba’s instant commerce investments, as its cloud computing business continues to expand, and its international online shopping unit, including AliExpress, saw a 19% jump in revenue during the quarter as losses narrowed.