Nvidia shares drop 1.7%; WSJ reports Alibaba develops new AI chip to help fill Nvidia void in China

Nvidia shares drop 1.7%; WSJ reports Alibaba develops new AI chip to help fill Nvidia void in China

Nvidia (NVDA) shares fell by 1.7% on Thursday following a report by the Wall Street Journal that Alibaba (BABA) has developed a new AI chip aimed at addressing the gap left by Nvidia in the Chinese market. The report cited sources familiar with the matter, indicating that the new chip is more versatile and can handle a broader range of AI inference tasks compared to Alibaba's previous AI processors [1].

The new chip, currently in testing, is manufactured by a Chinese company, marking a shift from Alibaba's earlier AI processor that was fabricated by Taiwan Semiconductor Manufacturing (TSMC) [1]. This move aligns with China's broader push to build a self-sufficient AI supply chain amidst U.S. restrictions on advanced chips [4].

Alibaba, China's largest cloud-computing company, is one of Nvidia's top customers. The new chip is designed to handle AI inference tasks, which are less demanding than the training of AI models, typically requiring more powerful hardware [4]. This development comes as Chinese tech companies, including Alibaba and ByteDance, have been pressured by Beijing to avoid purchasing Nvidia's H20 chip due to security concerns [1].

Nvidia's H20 chip, which is the most powerful AI processor it is allowed to sell in China, was effectively blocked from sale earlier this year by the Trump administration. The U.S. last month allowed Nvidia to resume sales of the H20 to China, but Chinese firms have been working on processors to substitute the H20 [1]. Nvidia developed the H20 specifically for China following U.S. export restrictions on its other AI processors in 2023 [1].

Nvidia's Chief Financial Officer, Colette Kress, cited U.S. regulatory and geopolitical issues for the lack of China sales expected in the October quarter. She mentioned that if Nvidia can clear up these issues, it could ship $2 billion to $5 billion of H20 chips to China this quarter [3]. Despite the uncertainty, at least 10 Wall Street analysts raised their price targets on Nvidia stock after the report [3].

Alibaba separately reported a 26% jump in revenue in its cloud computing segment for the April-June quarter, beating market estimates. This growth is attributed to solid demand for cloud computing services [2]. The development of the new AI chip further underscores Alibaba's commitment to advancing its technology capabilities and reducing reliance on foreign chip suppliers.

References:
[1] https://www.tradingview.com/news/reuters.com,2025:newsml_L4N3UL0LA:0-china-s-alibaba-develops-new-ai-chip-to-help-fill-nvidia-void-wsj-reports/
[2] https://finance.yahoo.com/news/chinas-alibaba-develops-ai-chip-090846681.html
[3] https://www.investors.com/news/technology/nvidia-stock-nvda-fiscal-q2-2026-earnings/?mod=newsviewer_click&refcode=aflMarketWatch&src=A00619
[4] https://finance.yahoo.com/news/alibaba-unveils-ai-chip-china-093837562.html