Alibaba Group Holding Ltd. reported stronger-than-expected revenue growth of 34% in its cloud business, helping offset a sharp drop in profit after the company ramped up spending on consumer subsidies and data centers to capitalize on the AI boom.

The cloud division — home to the flagship Qwen platform — lifted overall revenue 5% to 247.8 billion yuan ($35 billion) in the September quarter, slightly ahead of market expectations.

Alibaba also recorded a 16% increase in Chinese e-commerce revenue, indicating it is holding its ground in an intensifying three-way competition with JD.com Inc. and Meituan. Heavy investment and margin pressure nevertheless dragged net income down by half, and the company’s U.S.-listed shares fell more than 2%.