Alibaba Scales Back Retail Spending, Dismisses AI Bubble Fears

Alibaba Group Holding Ltd. will substantially reduce spending on its instant retail arm after a quarter marked by deep subsidies, while its chief executive dismissed fears of an artificial intelligence bubble and warned that hardware constraints will likely endure for years.

The strategic shift, outlined during the company’s earnings call Tuesday, underscores Alibaba’s bid to balance profitability in its core e-commerce operations with capital-heavy expansion in cloud computing. Chief financial officer Toby Xu said investment in its instant retail service “Taobao Flash Sale” peaked during the September quarter and will decline sharply next quarter as operations become more efficient and scale plateaus.

The company’s aggressive move into instant retail delivered fast revenue growth at a steep cost. Revenue from the segment — which includes Taobao Flash Sale and Ele.me — surged 60% year-on-year to 22.9 billion yuan ($3.2 billion), but accompanying subsidies slashed profit for Alibaba’s China e-commerce group by 76% to 10.5 billion yuan. Excluding those losses, Xu said, the unit would have posted mid-single-digit profit growth.