Alibaba shares fall 5% as AI spending drives 75% drop in net income

China's Alibaba on Thursday posted a 75% fall in profits for the June quarter as AI spending weighed on the tech giant's results.

Capital expenditure was up 75% to 67.7 billion Chinese yuan ($10 billion), primarily driven by uneven timing of customer purchases, an increase in CPU-compute capacity and higher prices across a broad range of chip components, the company said.

Meanwhile, revenue rose 9% to 268.95 billion Chinese yuan, slightly higher than an LSEG estimate of 268.88 billion yuan.

As the AI race accelerates, companies across the sector are increasingly contending with rising expenses for computing power and hardware. In March, the company reportedly said it was raising prices for its AI computing and storage products by as much as 34% amid surging demand.

Alibaba's U.S. listed shares were down 4.6% shortly after the market opened.

Revenue at the tech giant's key cloud division totaled 48.4 billion yuan, up 45% year-on-year. Alibaba's cloud unit is seen as key to the company monetizing artificial intelligence, much like Microsoft or Google .

AI-related product revenue delivered "triple-digit growth for the twelfth consecutive quarter," CEO Eddie Wu said in a Thursday statement. "With our full‑stack AI strategy, we have put Alibaba in a superior position to capture the substantial growth of demand for artificial intelligence and AI compute," he added.

Alibaba's disclosures on the performance of its AI Labs and Applications segment provide investors with a clearer view of how much the company is investing in AI, and how its AI products are progressing, Citi analysts said in a Thursday note.