Why Alibaba's Earnings Report May Spell Trouble for Amazon
Key Points
Alibaba and Amazon both have e-commerce and cloud computing businesses.
While they're investing heavily in AI infrastructure, the market seems to view Amazon with more skepticism.
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Chinese e-commerce company Alibaba (NYSE: BABA) posted a mixed earnings report for the fourth quarter of fiscal 2026. In a pre-market release today, Alibaba reported strong revenue growth, driven by a 40% jump in artificial intelligence-related cloud revenue.
But at the same time, the company badly missed analysts' earnings expectations, as net income of 86 million yuan ($12 million) was down from nearly 30 billion yuan a year ago, and it posted its first operating loss since 2021. Earnings of $0.19 per share were far below analysts' consensus expectations of $0.84 per share, or the $1.84 per share that it posted a year ago.
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The good news for Alibaba is that investors appear willing to shake off the loss and focus on Alibaba's growing cloud revenue. The stock was up 7% in morning trading. However, I don't expect that Amazon (NASDAQ: AMZN) would get the same treatment if it posts similar results in its next earnings report.
Image source: The Motley Fool.
Amazon gets treated differently than Alibaba
Amazon and Alibaba have a lot in common. Both are e-commerce companies, headquartered in the U.S. and China, respectively. And both have fast-growing cloud computing segments with significant growth potential as companies and developers increasingly turn to cloud environments to design, train, and run AI programs.
Last year, Alibaba announced plans to invest $55.9 billion over three years to improve its AI infrastructure and cloud computing capabilities.The market celebrated, with Alibaba stock jumping 34% the month that management made that announcement.
Amazon, meanwhile, had spent $131.8 billion on AI infrastructure in 2025. But when it announced plans to increase that to $200 billion this year, the market roiled. Amazon's stock fell 12% that month, and headlines were all about whether Amazon was spending too much, too fast, and if it would be able to see a return on its investment.
Amazon's spending on AI is already cutting into its free cash flow -- spending an additional $70 billion on AI this year will likely push its free cash flow into the negative. Amazon reported in its first-quarter results that trailing 12-month free cash flow dropped to $1.2 billion, down from $25.9 billion a year ago.
Amazon's increasing reliance on AWS
It's difficult to overstate how important Amazon's cloud computing division -- Amazon Web Services (AWS) -- is to the company. Amazon got $143.93 billion in revenue from its e-commerce sales, up from $126.40 billion a year ago. That's a solid increase of 13.9%. But at the same time, operating expenses for that segment were $134.24 billion, meaning that the Amazon.com division is generating a profit margin of only 6.7%.
Meanwhile, AWS's revenue of $37.58 billion was up 28.4% year over year, and its profit margin was 37.7%. In short, AWS accounted for most of Amazon's profits for the quarter and is growing much faster than e-commerce.
Amazon signed an agreement with Meta Platforms to deploy tens of millions of its AWS Graviton cores to support Meta's agentic AI, and signed agreements with OpenAI and Anthropic for a combined 7 gigawatts of computing capacity through its Trainium chips. Overall, Amazon has an annual revenue run rate of more than $20 billion for its AI chips.
Amazon stock is only up 1% since its April 29 earnings report, and it has plenty of time before it reports Q2 earnings sometime in late July. While I think that Amazon's spending on AI is justified -- and important to the future of the company -- I won't be surprised in the least if Amazon's aggressive spending unnerves investors yet again.
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Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Meta Platforms. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
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