China's race for AI supremacy - Alibaba in focus

We have been shareholders in Alibaba (NASDAQ: BABA) for many years now. I remember seeing Jack Ma present at a Credit Suisse conference in Hong Kong before the company was listed. I also attended their investor day in Hangzhou, just before Jack Ma stepped down from the helm of the company. It is good to see that Jack’s influence at the company is coming back as China once again supports its national champions in the AI race.

Alibaba’s cloud intelligence division has long been a leader in cloud infrastructure in China. Its investments in AI have seen an acceleration in revenue and earnings in this division, which grew 26% last quarter. AI-related product revenue maintained triple digit YoY growth for the eighth consecutive quarter.

As China diverts from the reliance of US-made AI chips and promotes the usage of its domestic counterparts, Alibaba is one of the leaders in manufacturing China’s homegrown AI chips. China’s growth in the AI sector is paralleling that of the US, driven by geopolitical constraints and the shipment of tailor-made China-specific AI chips, such as Nvidia’s RTX Pro 6000D. This move marks a step in China’s push for semiconductor independence, fuelled by China’s ban on domestic tech companies from purchasing Nvidia’s AI chips.

“The message is now loud and clear,” said an executive at one of the tech companies in China. “Earlier, people had hopes of renewed Nvidia supply if the geopolitical situation improves. Now it’s all hands on deck to build the domestic system.”

The recent geopolitical activity led to promoting Alibaba’s prevalence as a central player in China’s AI independence, where Alibaba is investing in a three-year plan costing 380 billion yuan to build its AI infrastructure. Currently, Alibaba is focusing on cloud integration, semiconductor chips and AI models, mirroring that of the US giant tech companies. Its primary goal is to create a robust ecosystem that is less dependent on foreign hardware while strengthening its competitive edge through its Cloud and AI services.

Alibaba recently secured China Unicom, a state-owned telecommunications operator and the second largest telecom carrier in China, for its “T-Head” AI accelerator chips. These chips will be deployed in Unicom’s new Qinghai data centre alongside other domestically made chips like MetaX and Biren Technology Co. The new data centre currently represents a $390M investment, and this activity signifies one of the first large scale commercial adoptions of Alibaba’s chips.

The “T-Head” chips have been reported with a notable performance, as China Unicom commented its superior memory compared to Huawei’s Ascend 910B. These recent activities suggest the Chinese tech leader’s nascent semiconductor efforts are gaining traction in its home market.

Alibaba also released a Tongyi Deep Research model, competing globally with OpenAI and DeepSeek. Alibaba’s AI chip is shown to be capable of operating AI services such as its Qwen models and DeepSeek’s R1.

China has been urging its domestic companies to develop a domestic semiconductor industry and stated recently that domestic processors now match the performance of Nvidia’s restricted China-only products. Beijing has signalled that major technology firms must pivot toward supporting domestic chip ecosystems. The state-industry effort is boosting AI chip manufacturing in China as well as facilitating Jack Ma’s renewed involvement with Alibaba.

With national-resilience mandates promoting tech growth in China, Alibaba mirrors a similar growth potential, mirroring the US Mag 7 companies, as the Chinese company develops its own AI system combining hardware, software, and services. China’s progress is reshaping global competition in the semiconductor industry, and we look forward to seeing how this race goes between the nations. We continue to be happy shareholders in Alibaba.