Alibaba and Tencent spend $18B on AI in a single quarter

China's two largest publicly traded technology companies spent a combined 120 billion yuan — roughly $18 billion — on capital expenditures in the second quarter of 2026, as an AI infrastructure arms race intensifies among the country's internet giants.

Record Spending, Shrinking Profits

Alibaba ↗ 2.23% reported capital expenditures of 67.68 billion yuan ($9.97 billion) for the quarter ended June 30, a 75% increase from the same period a year earlier, according to the company's official earnings release. Net income fell 76% year-on-year to 10.54 billion yuan as AI investment consumed cash flow.businesswire+1

Tencent posted capex of 52.8 billion yuan for the same quarter, far exceeding the analyst consensus estimate of 32.1 billion yuan and rising 65% from the prior quarter. Revenue grew 11% to 204.8 billion yuan, but net profit rose just 0.7% to 56 billion yuan, missing expectations. Free cash flow turned negative at minus 13.8 billion yuan.finance.sina+2

The spending drained Tencent's balance sheet: net cash fell from 146.9 billion yuan at the end of March to 58.2 billion yuan by June.finance.yahoo

An Arms Race With No Off-Ramp

Alibaba CEO Wu Yongming said on an earnings call that an industry-wide shortage of AI computing power is unlikely to ease before 2030, and that the company expects to recoup its AI infrastructure investment through Alibaba Cloud within two and a half to three years. He added that AI has become the company's "most certain growth engine."sedaily

Tencent President Martin Lau said the company is comfortable with large AI investments because it can turn a profit simply by leasing out computing resources. CEO Liu Chiping characterized the spending as a "one-time large investment" for model training, inference, and AI cloud services, cautioning that investors "should not assume this level of new investment every year".finance.sina+1

ByteDance, which is privately held, is estimated to be spending at a comparable or greater level. Bloomberg reported in May that the company was discussing raising 2026 capex to as much as $70 billion.finance.sina

Returns Still Unproven at Scale

The aggressive spending is beginning to show early revenue returns. Alibaba Cloud revenue grew 38% year-on-year, with AI-related product revenue posting triple-digit growth for multiple consecutive quarters. Tencent's AI capabilities helped drive a 22% increase in advertising revenue.finance.sina

Yet the financial strain is evident across the sector. Industry estimates suggest at least 80% of the combined capex was AI-related, and quarterly spending by smaller competitors such as Baidu ↗ 0.19% remains at just 6 to 8 billion yuan — roughly one-tenth of either leader.sedaily

Goldman Sachs has compared Tencent's current investment phase to Meta's ↗ 1.21% heavy spending cycle one to two quarters earlier: short-term pain for a long-term position in the market.finance.sina