TLDR
- UBS raised Alibaba’s price target to $162 from $158, maintaining a Buy rating after Q1 results addressed key investor concerns
- Alibaba developed a new AI chip in testing that’s more versatile than older chips for broader AI inference tasks
- The new chip is manufactured by a Chinese company, unlike previous processors made by Taiwan Semiconductor
- Cloud computing revenue jumped 26% in Q2, beating market estimates driven by strong demand
- Chinese tech companies focus on homegrown chips as Nvidia faces regulatory restrictions in China
UBS increased its price target for Alibaba to $162 from $158 while keeping a Buy rating on the shares. The upgrade came after the company’s Q1 fiscal report addressed several key investor concerns.
The analyst noted that quick commerce investments brought synergies and artificial intelligence cloud growth remained strong. UBS sees a positive outlook for Alibaba despite ongoing quick commerce investments.
Alibaba’s Q1 results showed the company’s ability to balance growth investments with operational performance. The firm’s cloud segment delivered particularly strong results during the quarter.
New AI Chip Development
Alibaba has developed a new AI chip that offers more versatility than its previous processors. The chip is currently in testing phase and designed to handle a broader range of AI inference tasks.
This new processor represents a departure from the company’s earlier approach. Unlike Alibaba’s previous AI chip manufactured by Taiwan Semiconductor Manufacturing, the new chip is produced by a Chinese company.
The move comes as Chinese tech companies increasingly focus on homegrown technology solutions. Regulatory restrictions have limited access to advanced foreign chips, pushing companies toward domestic alternatives.
Nvidia faced restrictions selling its most powerful chips in China following U.S. export controls. The H20 chip became the most advanced processor Nvidia could legally sell in the Chinese market.
However, the Trump administration effectively blocked H20 sales earlier this year. While the U.S. later allowed Nvidia to resume H20 sales to China, Chinese firms continued developing substitute processors.
Strong Cloud Performance
Alibaba reported a 26% revenue jump in its cloud computing segment for the April-June quarter. The growth beat market estimates and was driven by solid demand across the business.
The company remains China’s largest cloud computing provider. Alibaba also ranks among Nvidia’s top customers globally.
Beijing has pressured tech giants including Alibaba and ByteDance regarding H20 chip purchases. This pressure has accelerated efforts to develop domestic chip alternatives.
The H20 chip was specifically designed for the Chinese market following 2023 export restrictions. It offers less computing power than Nvidia’s H100 or Blackwell series processors.
Chinese AI companies have prioritized developing chips that could replace the H20. The focus on domestic technology reflects both regulatory constraints and strategic independence goals.
Alibaba’s new chip development aligns with broader industry trends toward self-reliance. The testing phase will determine whether the processor can effectively compete with foreign alternatives.
The company’s cloud segment continues showing strong momentum alongside chip development efforts. Revenue growth in cloud services exceeded analyst expectations for the quarter.
Alibaba’s dual focus on service growth and hardware development positions the company for continued expansion. The new AI chip represents a key step toward reduced dependence on foreign technology suppliers.
