Alibaba Surges Over 2% Pre-Market on Launch of Advanced AI Chip

TradingKey - On Friday, August 29, Alibaba's shares (BABA) jumped in pre-market trading, with gains expanding to over 2%. This uptick followed a report from The Wall Street Journal that the company has unveiled a more powerful AI chip designed to handle a broader range of AI inference tasks.

Alibaba has long been one of the major clients of chip giant Nvidia, which is currently facing restrictions on sales to China.

Recently, Nvidia acknowledged increased uncertainty regarding the sales prospects of its H20 chip designed for the Chinese market. Although the product has received export approval from the U.S. government, Nvidia's second-quarter financial report indicated that shipments of the H20 chip to China had not commenced as of August.

Previously, Cyberspace Administration of China had expressed concerns to Nvidia over security risks related to backdoor vulnerabilities in the H20 chip. According to Reuters, the Chinese government is accelerating the development of domestic AI chips, with several companies working on processors that rival Nvidia's H20 chip. The Financial Times reported that Chinese chipmakers plan to triple the production of domestic AI chips by 2026 to reduce reliance on Nvidia.

In light of Nvidia's sales obstacles and the Chinese government's push for domestic chip research, Alibaba and other tech firms are moving to fill gaps in China's chip market.

Unlike previous chips designed by Alibaba and manufactured by TSMC, the new chip will be produced domestically. The chip targets AI inference tasks, not AI model training, which still requires Nvidia's top-tier hardware.

Beyond Alibaba, other Chinese companies are making strides in chip design. In July, Shanghai-based startup MetaX launched a chip positioned as an alternative to the H20, employing older technology combined with two smaller chips to enhance performance. The company is preparing for mass production.

Chinese chipmaker Cambricon, which has recently experienced a stock surge, achieved significant breakthroughs. It reported sales of its Siyuan 590 AI chip generated 2.881 billion yuan in revenue and 1.038 billion yuan in net profit in the first half of 2025, marking increases of 4348% and 296% year-over-year, respectively. Over the past month, Cambricon's stock price has more than doubled, surpassing Kweichow Moutai to become the highest-priced stock on China's A-share market.

However, analysts caution that despite rapid advancements in domestic chip development, there are still notable weaknesses in training AI models. Engineers have reported overheating and crashes with domestic chips, including those from Huawei, during training operations.

As domestic chip development progresses, efforts to align domestic AI models with their hardware counterparts are also accelerating. Chinese AI startup DeepSeek recently announced that its new model version uses UE8M0 FP8 Scale precision parameters, designed for the upcoming generation of domestic chips, indicating potential for large-scale deployment.

Fund management firm Interconnected Capital, focused on AI, suggests this advancement could help domestic AI chips more swiftly narrow the gap with U.S. counterparts.