Alibaba challenges Nvidia on AI chips and jumps on the stock market

On the one hand, contrasting quarterly numbers with non-GAAP profit dropping 18% (GAAP net income up 72%). On the other, indications of the new Artificial intelligence (Ai) chip. All this with the confirmation of the investments (about 50 billion dollars) on Artificial Intelligence (AI) and the focus on it. This is how the event of the publication of Alibaba's latest quarterly figures can be summarised. A fact that saw the stock jump on the stock market. Why such a performance in the face of the not so incredible accounts? Because the numbers were already discounted by the market while - also in the wake of speculation - investors got 'excited' at the idea of Beijing's new (umpteenth) challenge on the Ai front.

Yes, the new challenge. But what is it? The chip developed by Alibaba is intended for inference, i.e. the execution of already trained models, and is more versatile than previous products. The real novelty, however, lies in the fact that the processor is manufactured in China, thus reducing dependence on TSMC's production and US technology, in particular Nvidia. Another key element is integration with the global software ecosystem: the chip is compatible with tools such as CUDA and PyTorch, de facto standards in the Ai world. This compatibility lowers the barriers of entry for Chinese developers and companies that have so far had to rely mainly on Nvidia. The announcement was then accompanied by the confirmation of the mammoth investment plan: more than $50 billion over three years to strengthen cloud and artificial intelligence. A figure that testifies to Alibaba's ambition to position itself as a global player in the Ai sector. So the market - in fact - reacted enthusiastically: the giant's shares gained up to 19%.

The move, on closer inspection, is part of a context of growing geopolitical tension. US restrictions on the export of advanced chips to China have prompted Beijing to accelerate its race towards technological self-sufficiency. Programmes such as Made in China 2025 and the massive state funds dedicated to semiconductors are evidence of a long-term strategy. Alibaba, in this sense, is not alone. Huawei, Cambricon and MetaX are among the other players in the former Middle Kingdom engaged in the development of domestic chips. However, on a technical level, Beijing is still lagging behind: most of its factories work with larger nanometre processes than TSMC and Samsung, resulting in lower performance and reduced energy efficiency. What's more: some chips, such as Huawei's, have shown problems with overheating during the training of complex Ai models. Finally: a crucial obstacle is access to the global supply chain. In fact, the most advanced Euv lithography machines, needed for the production of sub-7 nanometre chips, are blocked by American and European restrictions. This limits China's ability to quickly fill the gap.

Beyond that, Alibaba's new chip is more than an industrial announcement: it represents a piece of the global challenge on artificial intelligence. A game in which the West still has the upper hand, but China, with the support of its government and giants like Alibaba and Huawei, is closing the gap at an accelerated pace.

Looking at the quarterly numbers, however, these - it should be noted - are mixed. Total revenues amounted to Rmb 247.652 billion (about USD 34.571 million), up 2% year-on-year. Excluding discontinued operations such as Sun Art and Intime, however, growth on a comparable basis would have been 10%. GAAP operating profit stood at RMB34.988 billion (US$4.884 billion), down 3% year-on-year, mainly due to higher investments in Taobao Instant Commerce and infrastructure, partially offset by lower depreciation and amortisation and equity compensation.