Chinese technology giant Alibaba has come under pressure after reporting a significant decline in net profit, with investors concerned about the amount of money the company is spending on artificial intelligence.

Alibaba’s U.S.-listed shares fell about 4% in premarket trading on Thursday following the results.

The company has been investing heavily in AI and cloud computing as it attempts to strengthen its position in China’s technology industry.

Alibaba sees artificial intelligence as a major source of future growth, but developing advanced AI systems requires substantial spending on computing infrastructure, chips and data centres.

The weaker profit figures highlight a challenge facing technology companies around the world.

While AI is creating new business opportunities, companies must spend large amounts of money before they can determine how quickly those investments will generate returns.

Alibaba’s cloud-computing division is particularly important to its AI strategy. The company hopes increasing demand from businesses for cloud infrastructure and AI services will eventually offset some of the costs of developing its technology.

Investors are therefore paying close attention to Alibaba’s revenue growth rather than profit alone.

The company will need to demonstrate that its AI and cloud investments can produce sustainable commercial growth as competition intensifies among Chinese technology giants.

Source: The Wall Street Journal