Goldman Warns Of 'Steeper' Profit Plunge For China Tech As AI And 'Quick Commerce' Wars Collide
As China's internet giants brace for their third-quarter earnings reports, a new research note from Goldman Sachs, published November 10, 2025, paints a stark picture of a sector caught between two costly wars: a cash-incinerating battle for supremacy in "quick commerce" and a capital-intensive arms race in Artificial Intelligence. The report is a must-read for investors as it signals deepening margin pressure and forecasts a second consecutive quarter of aggregate profit declines for the sector's mega-caps, with the pain expected to intensify before it subsides.
With Tencent and JD.com reporting this week, followed by Alibaba, Meituan, and PDD later in the month, Goldman analysts led by Ronald Keung expect mixed results. However, the overarching theme is one of escalating costs and near-term pain, even as bright spots in AI and cloud offer a glimmer of hope for future growth.
A Bloodbath In Quick Commerce
The primary driver of the grim outlook is the brutal battle for market share in food delivery and on-demand retail. Goldman bluntly forecasts that these massive investments will drag down the entire sector, leading to a second, and steeper, quarterly profit drop.
"With these, we expect aggregate China Internet profits to see a second consecutive quarter of declines, at a steeper -31% yoy for the Sep quarter (vs. -9% yoy in the June quarter)... dragged by Rmb-36bn/-20bn/-13bn in quick commerce losses at Alibaba/Meituan/JD."
The report highlights that the RMB 36 billion (approximately US$5 billion) in quick commerce losses at Alibaba alone will cause its group profits to plummet. While the bank expects these losses to narrow sequentially in the fourth quarter, it cautions that the bleeding is far from over, with the duration of losses likely extending into 2026.
The AI Capex 'Uplift': A Double-Edged Sword
While quick commerce bleeds cash, the other major theme is the expensive race in AI. Goldman sees this as both a "bright spot" and a source of margin dilution. The accelerated capex from giants like Alibaba and Tencent is expected to fuel cloud revenue growth, mirroring the strong performance of their U.S. counterparts. However, these investments come at a significant cost.
"We expect further cloud revenue acceleration into Dec quarter/capex uplift to be the bright spots in sustaining investor sentiment on the AI theme... yet we expect muted EPS revisions on AI depreciation/inference costs and quick commerce losses."
This dynamic creates a complex narrative. Investors are cheering the AI-driven top-line growth, but the immediate impact on the bottom line is negative. Goldman draws a parallel to the U.S. market, where investors rewarded Amazon and Google for their cloud strength post-earnings, while punishing Meta for its surging capex guidance. The question is which path China's giants will follow.
Divergent Fortunes: Tencent vs. Alibaba
Within this challenging environment, Goldman sees starkly different paths for the two largest players. Tencent is positioned as the most stable, while Alibaba is set to bear the brunt of the investment-led profit collapse.
On a relative basis, Tencent appears to be in the strongest position:
"Tencent: (+) We expect Tencent will have the strongest profit set up amongst China Internet mega-caps, upside to games+ads, and potential expansion in focus to external AI cloud, yet (-) with some investor concerns over whether the company is entering a next investment phase into AI + inference costs ahead (which could suppress margin improvement...)."
In stark contrast, Alibaba faces a severe squeeze on its profitability, despite positive momentum in its core cloud business:
"Alibaba: (+) potential positive cloud/capex outlook that resembles Google+Amazon’s share price strength post-results and resilient CMR growth, yet (-) with substantial fall in group profits on quick commerce and lingering QC investments into Dec quarter."
Casualties Of The War
Other major players are also caught in the crossfire. Goldman projects a sizable 252% year-over-year drop in adjusted EBIT for Meituan due to intense competition and subsidies. JD.com is forecast to see its adjusted EBIT fall by a staggering 93% as it prioritizes new investments. Meanwhile, PDD will likely see top-line growth driven by its international platform, Temu, but adjusted EBIT is still expected to decline by 18%. Even DiDi Global is not immune, with profits expected to fall 57% due to investments in its Brazil food delivery business.
While the near-term outlook is decidedly bearish on profits, Goldman suggests that the Q3 results could mark a "key event/possible inflection point for investors to begin looking into 2026 towards an inflection of earnings next year." For now, however, the market is bracing for impact.