U.S.-listed shares in the company were up 8% at the market open.
Revenue in Alibaba's cloud segment surged 26% to 33.40 billion yuan ($4.67 billion), easily beating an expected 18.4% rise. However, that was eclipsed by weaker than expected growth in its e-commerce business, leaving overall revenue lagging estimates by 2%.
Alibaba has been among the most aggressive players in China's AI sector, unveiling upgrades on an almost weekly basis.
Over the past four quarters, the firm has cumulatively invested over 100 billion yuan in AI infrastructure and AI product research and development, Group CEO Eddie Wu told analysts on a post earnings call.
"Our investments in AI have begun to yield tangible results," Wu said. "We are seeing an increasingly clear path for AI to drive Alibaba's robust growth."
For the company overall, total revenue for the quarter ended June 30 came in at 247.65 billion yuan, below the 252.92 billion yuan average estimate compiled by LSEG.
This is the first time Alibaba has reported revenue from its China E-commerce Group, which includes platforms Taobao and Tmall, its new instant commerce business, food delivery app Ele.me and travel agency Fliggy. The group reported 10% growth in revenue.
Alibaba's income from operations decreased 3% on the year, and adjusted earnings before interest, tax and amortisation fell 14% due largely to investments in the instant commerce business.
Earlier this week, rivals PDD Holdings and Meituan (3690.HK) – both locked in a subsidy-driven battle for market share in the instant retail space alongside Alibaba and JD.com – warned that rising investments would weigh on profits in coming quarters.
Executives from both firms said competition had intensified during the period.
CFRA analyst Angelo Zino said that while the pivot toward quick commerce and AI investments had driven meaningful operational changes across the business, "profitability was impacted by growth initiatives, including user acquisition and technology infrastructure spending".
Wu said Alibaba aims to use its quick commerce business to help build up its overall ecommerce consumer base, targeting a 30 trillion yuan addressable market. He projected the quick commerce segment could contribute 1 trillion yuan in annualised incremental gross merchandise volume over the next three years.
International commerce revenue rose 19%, driven by expansion in key markets such as Europe and the Middle East.
Alibaba also said on Friday it had repurchased shares in its logistics unit Cainiao from Fosun International (0656.HK) for $349.8 million.
($1 = 7.1529 Chinese yuan renminbi)
