Alibaba Cloud is planning a greater reliance on its subsidiary T-Head's proprietary chips moving forward.

Speaking during the company's recent Q2 2026 earnings call, CEO Eddie Wu told analysts that the company remains confident about its AI and cloud business and expects to see profit and gross margins increase as it "ramp[s] up deployment of our own proprietary chips in our data centers, as they account for an increasing proportion of total chips and replace commercially procured chips."

These reassurances were needed during the call, with the company's quarterly net profit falling 75 percent as Alibaba ramped up its AI capital expenditure.

Operating margins were six percent, down 14 percent from the year prior.

Capex for the quarter was $10.07 billion, up 75 percent Year-on-Year (YoY). CFO Toby Xu noted this was due to "continued investments in AI infrastructure to meet strong and growing customer demand," adding that "the significant year-over-year increase is due to several reasons, including fluctuations in procurement cycles, an increase in CPU compute capacity driven by anticipated growing customer adoption of AI agents in higher pricing of a broad range of chip components."

With capex for the quarter significantly increased, questions were raised about Alibaba's previously stated three-year ~$53bn estimate.

CEO Wu noted that this is reflective of "fluctuations in the cadence and pace of hardware deliveries," adding, "I don't think we should take the spending for this quarter and multiply it by four to come up with an annualized figure for the year or to expect that there'll be a steady linear progression."

According to Wu, Alibaba also now operates the largest number of data centers across any Asian cloud provider. The company has regularly launched new locations, including, in recent months, data centers in South Korea, Japan, France, and Malaysia.

While costs increased, Alibaba noted that its AI and cloud products brought in revenues of $7.139bn, up 45 percent YoY and up from the $6.19bn of the prior quarter. AI-specific items brought in $1.82bn, and saw consecutive growth in the triple digits for the third year running.

Wu told analysts that the company is confident it will achieve $15bn in external cloud revenue by 2030, and to achieve a gross margin of 20 percent. He added that, based on current margins, they expect to break even on AI-related capex within three years, and as margins increase, hopefully shorten the payback period to 2.5 years.

Other key metrics for the quarter include an adjusted EBITDA of $5.77bn, down 14 percent YoY.