Hua Er Jie Jian Wen·2025-11-10 08:52Core Insights - The upcoming Q3 earnings reports from major Chinese internet companies are expected to reveal a harsh reality, with aggressive investments in "instant retail" significantly eroding profits despite growth in AI and cloud businesses [1][2] - Goldman Sachs predicts a substantial year-on-year profit decline of 31% for the Chinese internet sector in Q3, worsening from a 9% decline in Q2 [1][2] - The focus for investors will shift from quarterly earnings to management guidance on investment intensity and paths to narrowing losses for Q4 and 2026 [1][2] Group 1: Profit Decline and Losses - Instant retail is projected to cause significant losses for Alibaba (RMB 36 billion), Meituan (RMB 20 billion), and JD.com (RMB 13 billion) in Q3 [4] - Despite expectations of a reduction in losses for Q4, achieving a 50% reduction in losses remains unlikely at this stage [4] Group 2: AI and Cloud Business - AI is a central theme in this quarter's earnings, with cloud revenue expected to accelerate due to strong AI demand, particularly for Alibaba and Tencent [3] - Alibaba's cloud revenue is forecasted to grow by 31% year-on-year in Q3, up from 26% in the previous quarter [3] Group 3: Capital Expenditure and Profit Erosion - Major investments in AI infrastructure are leading to increased capital expenditures, which are expected to dilute short-term profits [3] - Goldman Sachs anticipates Alibaba's capital expenditures to reach RMB 460 billion for the fiscal years 2026-2028, exceeding the company's previous target of RMB 380 billion [3]