Alibaba Reported to Develop New AI Chip after Backup Plan Confirmed at Earni...

TMTPOST -- The American depository receipts (ADRs) of Alibaba Group on Tuesday rose 2.6%, extending an around 13% rally for the previous trading session, their largest daily increase since 2023 March. Shares soared after the Chinese cloud and e-commerce giant showed its artificial intelligence (AI) push paid off in financia results, and suggested it’s taking actions to secure enough AI chips for sustainable development.

Credit：Alibaba

Alibaba, a long-time big customer of U.S. AI chip leader Nvidia Corporation, has developed a new AI chip "that is more versatile than its older chips", and the company and other chip designers could begin "filling the void left after Nvidia ran into regulatory barriers to selling its products in China," the Wall Street Journal reported on Friday.

Unlike previous cloud-computing chips mainly designed for specific applications, Alibaba’s new chip, now in testing, appeared as a general-purpose one since it was reported to serve a broader range of AI interference task. The chip is designed for inference, instead of training, as China’s biggest weakness is training AI models, the report noted.

Alibaba’s new chip was also said to be designed to work with the Nvidia software ecosystem so it will be compatible with the Nvidia platform to ease engineers and developers’ adoption. The report suggested the chip is domestically built. That was an essential step for China toward more localized production, though local players relying on Chinese chip factories like Alibaba are now facing the challenge to get enough supply due to manufacturers’ difficulties in increasing capacity.

Alibaba didn’t respond to the report, while CNBC later echoed, citing anonymous sources that Alibaba is developing an in-house chip for AI applications. The semiconductor is said to be specially designed for inferencing, which is the actual running of AI applications, rather than training which is when huge amounts of data is used to develop a large model, but Alibaba will continue to use chips from other vendors including Nvidia.

While China remains a laggard on making the most advanced semiconductors comparable to American competitors, Alibaba’s new chip is one of the latest sign that Chinese companies are working on alternatives for Nividia’s H20, the most powerful AI chip it is created to comply with the Biden-era export controls and allowed to sell in China.

Chinese upstart DeepSeek more than a week ago indicated China will soon have next-generation homegrown chips to power its AI models. When releasing its new reasoning model V3.1 on August 21, DeepSeek said its software innovation--the UE8M0 FP8 precision format of the model is tailored for the next-generation domestically built chips that will be launched soon.

Nvidia on Friday posted mixed results for its first fiscal quarter ended June 30, 2025, while reaffirming its aggressive AI spending plan these years, expressed confidence on and recent reports suggested its development of AI chip.

Alibaba posted revenue of RMB247.6 billion ($34.6 billion) for the June quarter, less than analysts’ projection of $35.2 billion polled by FactSet. That represented a 2% year-over-year (YoY) increase in sales, cooling from a gain of 7% three months ago. But the net income surged 76% YoY to RMB42.38 billion ($5.9 billion), beating the $3.7 billion consensus view. On Non-GAAP basis, Alibaba earned RMB14.57 ($2.06) diluted earnings per American depositary share (ADS) with a 10% YoY decrease, versus analyst expectations of $1.97 per ADS, representing a 10% fall from a year ago.

Alibaba attributed the dramatic YoY surge in net income to gains from equity investments and the sale of f local consumer service business of Trendyol, a Turkish e-commerce company.

Alibaba’s cloud computing business is one of highlights with the fastest growth rate among segments for the June quarter. Cloud Intelligence Group, which houses Alibaba’s AI-related projects and hosts computing power for external clients, brought RMB33.40 billion with a 26% YoY rise, compared with a YoY increase 18% for the previous quarter. This momentum was primarily driven by public cloud revenue growth, including the increasing adoption of AI-related products, said Alibaba. It noted AI-related product revenue maintained triple-digit year-over-year growth for the eighth consecutive quarter.

“This quarter, our strategic focus on consumption and AI + Cloud delivered strong growth. Our decisive investment in the quick commerce business achieved key milestones as we won consumer mindshare. We generated substantial synergies from combining resources of our consumer platforms which resulted in new highs in monthly active consumers and daily order volume,” said Alibaba CEO Eddie Wu.

Wu vowed to invest in Alibaba’s two strategic pillars of consumption and AI + Cloud to “capture historic opportunities and drive long-term growth.” He on the earnings call said Alibaba in June quarter booked RMB 38.6 billion of capital expenditure (CapEx) investment in AI and cloud infrastructure, and has cumulatively invested over RMB100 billion in AI infrastructure and AI product research and development (R&D) over the past four quarters.

Wu told analysts Alibaba would continue to implement its three-year plan to invest RMB380 billion in cloud and AI. The commitment to technology investment unveiled in February reflects the company’s long-term ambition to build infrastructure essential for AI proliferation.

Wu in the meantime acknowledged the potential AI supply chain shock amid trade-war tensions between the U.S. and China, and revealed Alibaba had its “Plan B”. “However, based on the supply chain situation in different quarters, there may be a quarter-to-quarter fluctuation. At the same time, based on changes in policies around AI chips and supply, we have backup plans in place to work with various different partners and to be able to respond to different situations in respect of supply chains,” said Wu.

Wu stressed his confidence on the CapEx plan. ”I’m confident that no matter what changes may crop up in the industry we will continue as planned and as expected, to move forward with that planned CapEx investment of RMB 380 billion,” the chief executive said.