Shares surged +3.3% to $129.61 after Alibaba unveiled a homegrown processor for running AI software in data centers, its boldest move yet to become a self-sufficient AI hardware maker. The rally comes just days after a brutal earnings report that saw profits plunge 67% — raising a pointed question: is this a genuine inflection point or a well-timed distraction?
The Chip Is Fast, but It's No Nvidia Killer. Clocked at 3.2 GHz and built on a 5-nanometer process, the new processor is described as the most powerful of its kind globally and runs more than three times faster than its predecessor. But context matters: one analysis puts its performance nearly on par with Apple's M1 chip — which launched in 2020.
The chip handles AI inference — the actual running of AI models — not training, the category dominated by Nvidia's GPUs. It's a cost play, not a performance crown.
Wall Street Sees Hidden Value in the Chip Unit. Morgan Stanley analyst Gary Yu reiterated an Overweight rating with a $180 price target, saying the chip reinforces his view that Alibaba controls key layers of AI infrastructure.
The firm's valuation model puts Alibaba's chip division alone at $28B–$86B, or roughly $22 per share — a business currently buried inside the conglomerate. Alibaba plans to spin off that chip unit for an independent listing , which could force the market to price it separately.
Production, Not Design, Is the Real Bottleneck. Morningstar's Chelsey Tam said the chip's importance "lies primarily in improving supply chain resilience," but cautioned that "capacity constraints make it hard for Alibaba to increase chip production drastically."
The division has shipped 470,000 AI chips as of February 2026 with annualized revenue exceeding RMB 10 billion — meaningful, but a fraction of what Nvidia moves. Alibaba has not disclosed which company manufactures its chips , a critical unknown given U.S. export controls on advanced chipmaking equipment to China.
The Bigger Bet: Owning Every Layer of the AI Stack. CEO Eddie Wu says he is aiming for Alibaba to be a full-stack AI technology provider — chips, cloud servers, AI models, and apps all under one roof. Cloud revenue accelerated 36% to $6.19 billion last quarter, while AI product revenue posted triple-digit growth for a tenth straight quarter. Owning the silicon underneath that cloud business lowers costs and reduces dependence on foreign suppliers — having its own chips means less reliance on outside vendors, which lowers costs and reduces exposure to U.S. export controls. Whether Alibaba can manufacture at scale will determine if this is a real competitive edge or an expensive science project.