Alibaba's New AI Chip Fuels a 4.6% Rally, but Can Hardware Ambitions Overcome a Weakening Core Business?

Shares surged as Alibaba unveiled a homegrown processor purpose-built for AI, giving Wall Street fresh reason to bet on the company's pivot from e-commerce giant to AI infrastructure power. The question for shareholders: does a chip announcement justify the excitement, or is it a distraction from slowing online retail?

• The Chip Is Fast, but the Real Point Is Self-Reliance. Clocked at 3.2 GHz on a 5-nanometer process, the new server-grade processor runs more than three times faster than the one it replaces.

It's built on RISC-V, an open-source blueprint that lets designers customize chips without paying the steep licensing fees charged by rivals like Arm. For Alibaba, the strategic payoff is insulation from U.S. export controls. Morgan Stanley's argument is straightforward: having its own chips means Alibaba depends less on third-party suppliers, which lowers costs, allows faster scaling, and reduces exposure to U.S. export controls.

• Morgan Stanley Sees 37% Upside — With a Big Caveat. Analyst Gary Yu reiterated an Overweight rating and kept his $180 price target , implying roughly 37% upside from today's $131.29. The firm values Alibaba's chip division at $28 billion to $86 billion, or about $22 per share, as part of a broader sum-of-the-parts valuation of $245. But the $180 target was actually cut from $200 in January. The firm pointed to a weaker outlook for the company's core e-commerce business even when cloud momentum is still strong.

• A Possible IPO Could Unlock Hidden Value. Alibaba is planning to spin off its chip unit for an independent listing.

The division has shipped 470,000 AI chips as of February 2026, with annualized revenue exceeding RMB 10 billion (~$1.4B).

Over 60% of those chips now serve external commercial customers — critical for proving the unit can generate revenue outside Alibaba's own cloud.

• Analysts Are Bullish, but the Numbers Demand Scrutiny. BABA carries a Strong Buy consensus based on eight Buy ratings and one Hold, with an average price target of $188.38. Yet Alibaba's December quarter revenue of RMB 284.8 billion missed estimates by 2% , and Morningstar's Chelsey Tam warned the chip launch won't have a major revenue impact because "capacity constraints make it hard for Alibaba to increase chip production drastically." The stock is up 78% over the past year, pricing in an AI future that still needs to show up in the income statement.