Alibaba W (09988) announced last Friday that its performance exceeded market expectations, and it was reported that Alibaba has developed a new chip that is more powerful than its previous model. On the first trading day of September, Alibaba’s stock in the Hong Kong market opened strongly, rising 15% and closing up 18.5%, marking the largest increase in three years. Last Friday, Alibaba’s US stock (BABA.US) surged nearly 13% in a single day, achieving the best single-day performance since March 2023.
Alibaba’s latest financial report shows that its Non-GAAP net profit in the second quarter decreased by 18% year-on-year, but its core business demonstrated strong resilience: cloud business revenue grew by 26% year-on-year, and Taobao Flash Sale became the biggest highlight driving user growth. Management disclosed during the earnings call on Friday evening that Taobao Flash Sale, which launched only four months ago, has surpassed 300 million monthly active users, a 200% increase compared to before April, exceeding the initial target.
In terms of cloud business, Alibaba emphasized that it has invested over 100 billion RMB in AI infrastructure and product development over the past four quarters, which is beginning to translate into performance growth. In the second quarter, Alibaba Cloud’s revenue grew by 26% year-on-year to 33.398 billion RMB, with AI contributing over 20% to external commercialization revenue. Progress in AI has also made Alibaba’s stock price more reliant on its commercial competitors this year. The company reiterated that it will continue to invest 380 billion RMB in AI capital expenditures over the next three years. Alibaba also revealed that it has prepared a “backup plan” for global AI chip supply and policy changes.
Further boosting the stock price is news about Alibaba’s chip development progress, reportedly having developed an AI inference chip to fill the gap left by Nvidia’s inability to sell chip products in China. Previous reports indicated that domestic companies are developing alternatives to Nvidia’s H20 chip. In July, US President Trump allowed Nvidia to resume exports of the H20 chip to China, but there were subsequent reports that the domestic government requested companies to refrain from purchasing this chip.
According to the Wall Street Journal, most of the cloud computing chips previously developed by Alibaba were designed for specific applications, while the newly developed chips are currently in testing and aim to serve a broader range of AI inference tasks, and are compatible with Nvidia. The new chips are no longer manufactured by TSMC but are instead being produced by a domestic company.
Significance of Alibaba’s Self-Developed AI Chips
Breaking through computing power restrictions and ensuring supply chain security: In the context of the US imposing restrictions on high-end GPU exports, Alibaba’s self-developed chips and shift to domestic manufacturing is a key step in addressing “bottleneck” risks and seeking autonomous control over computing power. This can reduce dependence on overseas supply chains and provide a more stable computing power guarantee for the development of the domestic AI industry.
Compatibility design reduces migration barriers, ecosystem building is key: The new chips are reportedly compatible with Nvidia’s software architecture, which means developers can relatively easily migrate existing programs written for Nvidia chips, significantly lowering the migration costs for developers and the resistance to ecosystem building. This helps attract users and accelerates the application and iteration of domestic chips.
Potential performance and cost advantages: Reports suggest that Alibaba’s new chips can reduce latency to 70% of comparable Nvidia chips when running specific large models, with electricity costs halved. If mass production and validation can be achieved, it will significantly enhance its cost-effectiveness and market competitiveness.
Driving the development of the domestic semiconductor industry chain: Alibaba’s shift to domestic manufacturing and significant increase in the localization rate of packaging substrates will undoubtedly drive technological progress and business growth of related companies in the domestic semiconductor industry chain, creating a cluster effect.
Alibaba’s Stock Price and Valuation Outlook
Overall, Alibaba’s latest performance demonstrates its strong resilience in core business and firm determination in the AI field. Short-term profits are affected by investments in businesses like food delivery, but the strong growth and immense potential of AI and cloud provide key support for its future valuation. The success of self-developed AI chips is not only a technological breakthrough but also an important strategic move to secure its development initiative and embrace the AI era in a complex international environment.
Short-term stock prices will be influenced by US stock performance, market sentiment, and short-term factors such as losses in the food delivery business. The core drivers of long-term stock prices will depend on whether the growth of AI cloud business can be sustained (revenue growth rate, profitability), the synergistic effects of large consumption strategies and monetization capabilities, as well as the actual implementation and cost control of core technologies like self-developed chips. If the company can continuously prove its strategic execution and technological competitiveness in the AI era, its valuation is expected to further recover and improve.
Alibaba’s current valuation reflects market concerns about the slowdown in growth of its traditional e-commerce business, but it also begins to partially reflect the growth potential of its AI and cloud businesses. The market hopes to see that the company’s investments in businesses like food delivery can stabilize or enhance market share, and closely monitors whether Alibaba Cloud can maintain its current accelerated growth momentum and whether the high growth trend of AI-related revenue can continue. For self-developed chips, the actual performance indicators, stability, and mass production scale are crucial. Whether it can truly support Alibaba’s own AI business development and provide external output will be key to validating its value.
This analysis is provided by Martin Lam, Chief Analyst for ATFX Asia Pacific.(The above analysis represents personal views only; the market carries risks, and investment should be cautious. ATFX will not be responsible for any losses that may arise directly or indirectly from the use or reliance on this information.)
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