China's Alibaba Cloud is seeing record revenue growth led by AI demand, with CEO Eddie Wu noting that "demand is accelerating" during the company's Q2 FY2026 earnings call.

Revenue of the cloud unit grew 34 percent year-on-year (YoY), reaching $5.6bn, with "AI-related products" continuing to post triple-digit growth for the ninth consecutive quarter. The previous quarter had a revenue of $4.66bn, up 26 percent YoY.

However, senior executives at the company noted that they were struggling to deploy servers fast enough to meet AI demand and were having to strategically ration access.

"If an external customer is utilizing all of our services across cloud, all of Alibaba Cloud services spanning storage, spanning big data, and all of these other things, then of course that customer would be accorded a higher level of priority,” Wu said.

“If you have a customer that’s merely renting a GPU to meet some very simple inferencing needs, then the demands of those customers would accordingly be given a slightly lower level of priority.”

In addition to prioritizing some customers, in October 2025, Alibaba claimed it could reduce GPU use by 82 percent with its "pooling" system.

He later noted that the company is seeing supply as a significant bottleneck.

"Starting from the second half of this year, I think we’ve seen worldwide, if you look at fabs, if you look at DRAM vendors, storage companies, CPU manufacturers, across all of those different links in the value chain that go to making AI servers, there is a situation of undersupply."

"Supply is unable to keep up with demand for all of these components globally. I think that you can expect that to continue throughout this scaling-up and investment cycle, driven by real demand for AI." Wu estimated that this would continue for a period of "two to three years."

Over the last 12 months, Alibaba has spent around $16 billion on AI-related purchases, significantly less than its US competitors, with Amazon Web Services seeing a capex of around $34.2 billion for the most recent quarter alone.

This spend is in line with previous estimates from Alibaba that it would invest around $53bn in cloud and AI over the next three years, however CEO Wu said that this may now be "on the small side."

He told analysts: "Based on what we’re seeing now, and as I just mentioned, the pace at which we can add new servers is insufficient to keep up with the growth in customer orders. Looking at the capex situation from where we’re at today, and of course, there are also supply chain issues to consider as well, the pace at which we can build out IDCs and launch new servers is also part of that consideration."

"In that context, if we’re not able to satisfy all of that customer demand, especially with the current pace of investment, then we wouldn’t rule out further scaling up that capex investment. That is somewhat dependent on supply chains and availability."

China's Tencent, meanwhile, saw capex declining in its most recent quarter due to its inability to buy as many GPUs as it would like to, citing a "change in terms of AI chip availability" and "supply constraints." The company spent just $1.83bn in the quarter.

Wu also dismissed concerns about the "AI bubble," telling analysts that with all their GPUs running at full capacity – both older generations and new – Alibaba thinks that the "so-called AI bubble probably does not exist."

Full company revenue was $34.98 billion, and adjusted EBITDA decreased to 78 percent.