Inside China’s Machine · Frontier, Episode 2
On 20 August 2026, Alibaba reported its June quarter and, for the first time, split its AI business in two.
The first box, AI Cloud and Compute Services (compute, for short), rents out servers and holds T-Head, Alibaba’s own chip designer. The second, AI Labs and Applications (the labs), holds the labs behind Qwen, Alibaba’s family of models, along with the Qwen consumer app.
Compute earned RMB 5,628m, measured in adjusted EBITA, Alibaba’s own operating-profit figure. The labs lost RMB 13,861m on sales of RMB 3,338m, about four times what they sold, and Alibaba puts part of that loss down to the running cost of its consumer Qwen app. The loss is about two and a half times the profit beside it. A year earlier the two together lost RMB 805m.
Who pays for China’s AI models? It depends on the kind of company. Inside a large group, the group’s other businesses pay: at Alibaba, the shopping business, whose profit of RMB 39.7bn is nearly three times the labs’ loss. A model maker outside the group pays with its investors’ money. MiniMax is one: Alibaba holds an indirect stake of about 11% in it, and MiniMax bought about US$75.6m of cloud services from Alibaba Cloud in the first half of this year. Its research spending in that half was two and a half times its revenue, and it paid for its cash needs mainly from financing. In both cases spending on models ran ahead of what the models sold, and someone other than the models’ buyers covered the gap.
The one part of Alibaba’s AI business that made money is the part that owns the machines. The models are the cost.
Who is left with the profit from China’s AI models decides who can afford to build a frontier model and who has to be carried by someone else.