Alibaba unveils ai chip to cut reliance on nvidia
Beijing, Friday, 29 August 2025.
Alibaba has engineered a new AI chip to navigate around restrictions on Nvidia’s chip sales in China. Currently undergoing testing, the chip is designed for AI inference tasks. Production has shifted to a domestic Chinese firm, as TSMC is no longer manufacturing the chip, marking a significant stride in China’s ambition to bolster its semiconductor industry amid ongoing geopolitical tensions with the U.S.
Nvidia’s market position
Nvidia, a dominant force in the AI chip market, has been facing regulatory headwinds in China [3]. These restrictions have spurred Chinese tech firms to develop domestic alternatives [4]. While the U.S. had previously blocked sales of Nvidia’s advanced H20 chip, it later permitted the resumption of sales [3]. However, pressure from Beijing on tech giants like Alibaba and ByteDance to limit H20 purchases underscores the drive for self-sufficiency [3]. This environment creates both challenges and opportunities for Nvidia (NVDA:NASDAQ) as it navigates the complexities of the Chinese market.
Revenue potential impact
Alibaba’s development of a new AI chip signals a potential shift in demand away from Nvidia within China [3]. Despite Nvidia’s efforts to cater to the Chinese market with the H20 chip, designed specifically to comply with U.S. export regulations, these chips have less computing power than Nvidia’s top-tier offerings like the H100 and Blackwell series [3]. The move by Alibaba, a major Nvidia customer and China’s largest cloud-computing firm, to source AI chips domestically could impact Nvidia’s revenue stream in the region [3]. However, Alibaba management has stated that they have a ‘plan B’ for AI chip supply and policy changes [5].
Competitive advantage and strategic response
Nvidia’s competitive advantage hinges on its technological lead in high-performance AI chips [GPT]. The development of a compatible AI chip by Alibaba could intensify competition [7]. The Chinese government’s backing of domestic AI chip development aims to reduce reliance on foreign technology [2]. This strategic push could erode Nvidia’s market share in China over time. Alibaba’s earlier cloud-computing chips were designed for specific applications, the new chip is more versatile and compatible with Nvidia [7]. To maintain its competitive edge, Nvidia may need to continue innovating and adapting its offerings to meet evolving Chinese market demands.