GoKawiilAlibaba shares jumped on Wednesday as investors liked the e-commerce giant's bullish tone on AI, even as it reported a plunge in its core profit for the March quarter.
Following the release of Alibaba's earnings, the stock fell by as much as 4% in pre-market trade.
But it rallied after the open as executives defended the company's investments, telling analysts that they will eventually pay off. It was 7.5% up as of 11.33 a.m. ET.
"We see the ROI (return on investment) on this investment in the next 3-to-5 years as being extremely clear," Wu said on the earnings call on Wednesday.
The stock rally came even after Alibaba said its adjusted earnings before interest, taxes, and amortization (EBITA), a measure of the company's underlying profitability, came in at 5.1 billion Chinese yuan ($750.9 million), an 84% year-on-year drop, as it continues to invest in technology and its e-commerce business.
This financial metric strips out one-time gains or losses to focus on a company's core business.
Wu said the demand for AI is so strong that the company will have to spend more on compute in the next five years than its previous three-year 380 billion yuan capital expenditure projection.
However, this may not necessarily mean a rise in capex as some of the compute power could be rented as part of Alibaba's operating costs.