Alibaba's New AI Chip Sparks Nvidia Dip Amid China's Semiconductor Push

Alibaba is reportedly working on a new AI chip to reduce China's reliance on US semiconductor giant Nvidia. The chip is designed for AI inference tasks and is compatible with Nvidia's software ecosystem. However, prominent investor Ross Gerber dismissed the move as "laughable" posturing to secure Nvidia Blackwell sales. Nvidia shares dropped 3.32% following the news.

Alibaba Group has announced its development of a new AI chip aimed at reducing China's dependence on U.S. semiconductor giant Nvidia. The chip, designed for AI inference tasks, is set to be released in collaboration with domestic manufacturers, marking a significant shift in Alibaba's semiconductor strategy [1].

The new chip is optimized for AI inference, a critical area for deploying machine learning models in applications such as customer service and logistics. While it does not yet rival the high-compute capabilities of Nvidia’s H20 for training large models, its versatility and localized production align with Beijing’s push to insulate its tech supply chain from U.S. export restrictions [3].

The move comes amid escalating U.S.-China tech tensions. U.S. regulatory barriers have limited access to advanced GPUs, creating a vacuum that Alibaba and other Chinese firms are racing to fill. By manufacturing chips domestically, Alibaba not only reduces its exposure to foreign policy risks but also accelerates the adoption of homegrown solutions across its cloud and e-commerce ecosystems [6].

However, prominent investor Ross Gerber dismissed the move as "laughable" posturing to secure Nvidia Blackwell sales. Nvidia shares dropped 3.32% following the news, reflecting market concerns about the potential impact on Nvidia's dominant position in the AI hardware market [2].

Alibaba's strategic rebalancing is part of a broader trend: Chinese companies are increasingly prioritizing vertical integration to ensure resilience in an era of decoupling. The company's cloud division, the Cloud Intelligence Group, has become a cornerstone of its financial strategy, reporting a 26% year-on-year revenue increase to $4.66 billion in Q2 2025, driven by triple-digit growth in AI-related products [1]. This performance outpaced the company’s overall earnings, which were tempered by macroeconomic headwinds and price wars in its core e-commerce business [3].

Yet, Alibaba's long-term outlook is bolstered by its ecosystem advantages. Its integration of AI-native tools, such as the Qwen3 model with 235 billion parameters, positions it to capture value across multiple layers of the AI stack—from infrastructure to application development [1]. This vertical integration mirrors strategies employed by global tech giants, enabling Alibaba to reduce margins on hardware while capturing higher-margin software and services.

Alibaba's AI and cloud initiatives represent more than a response to U.S. sanctions; they are part of a calculated effort to redefine China’s role in the global tech hierarchy. The company’s 2025 progress—marked by a new AI chip, resilient cloud growth, and a bold investment strategy—demonstrates both the opportunities and challenges inherent in this transition. For investors, the key question is whether Alibaba can sustain its momentum while navigating domestic market dynamics and global competition [4].

References:
[1] Alibaba’s Q2 Earnings: Mixed Results, Focus on AI and Cloud Investments [https://www.ainvest.com/news/alibaba-q2-earnings-mixed-results-focus-ai-cloud-investments-2508/]
[2] Alibaba Results Likely to Show Limited AI Payoff for China Tech [https://www.reuters.com/business/media-telecom/alibaba-results-likely-show-limited-ai-payoff-china-tech-2025-08-27/]
[3] Alibaba Creates AI Chip to Help China Fill Nvidia Void [https://www.wsj.com/tech/ai/alibaba-ai-chip-nvidia-f5dc96e3?gaa_at=eafs&gaa_n=ASWzDAh2rlY_cVWCZCEigsTXVVg3AaL7HvIKhansfJg_xxRN_eS5o4RA7hac&gaa_sig=nELBZDdxEj4Sowkmw99ewd2cgihLgh0izbMmddpM4bAxJQ3nY68C91TYqjckohsfl4nW8IImV2MiU96MxvMSdw%3D%3D&gaa_ts=68b19a22]
[4] Alibaba to Invest RMB380 Billion in AI and Cloud Infrastructure Over Next Three Years [https://www.alibabacloud.com/blog/alibaba-to-invest-rmb380-billion-in-ai-and-cloud-infrastructure-over-next-three-years_602007]
[5] Cloud Market Share Q2 2025: Microsoft Dips, AWS Still Kingpin [https://www.crn.com/news/cloud/2025/cloud-market-share-q2-2025-microsoft-dips-aws-still-kingpin]
[6] Alibaba’s June Quarter 2025 Results: A Turning Point for E-Commerce and Cloud Reinvestment [https://www.ainvest.com/news/alibaba-june-quarter-2025-results-turning-point-commerce-cloud-reinvestment-2508/]