In a significant move that reshapes China's tech landscape, Alibaba and Baidu have begun utilizing their internally designed chips to train artificial intelligence (AI) models, partially reducing their reliance on Nvidia processors.

Alibaba's AI Chip Progress

Alibaba, the e-commerce giant, has been leveraging its proprietary chips for smaller AI models since early 2023. According to employees who have used it, Alibaba's AI chip is now competitive with Nvidia's H100 in terms of performance.

Baidu's Kunlun P800 Chip

Baidu, known for its search engine and AI capabilities, is experimenting with training new versions of its Ernie AI model using its in-house developed Kunlun P800 chip.

Continued Use of Nvidia for Advanced Models

Despite the shift towards domestic technology, both Alibaba and Baidu continue to use Nvidia chips for their most advanced models. Nvidia's H100 chip still outperforms Chinese alternatives in overall performance for high-end AI applications.

Driving Factors Behind the Shift

This transition comes amid two significant pressures:

1. Increasing US export restrictions on advanced AI chips to China
2. Growing pressure from Beijing on companies to adopt domestic technology

Implications for China's Tech Industry

This move represents a notable change in China's tech sector, where companies have traditionally relied heavily on Nvidia's processors for AI development. The shift towards in-house chip production could potentially reduce China's dependence on foreign technology in the long run, aligning with the country's push for technological self-reliance.

As the AI chip race continues to evolve, the tech industry will be closely watching how these developments impact global AI innovation and the competitive dynamics between US and Chinese tech giants.

Alibaba, the Chinese e-commerce giant, saw its shares skyrocket by 15% following the release of impressive quarterly results, with a notable surge in artificial intelligence (AI) revenue. This remarkable performance not only boosted investor confidence in the company but also had a ripple effect on the broader Asian market.

Impact on Asian Markets

The strong showing by Alibaba had a positive impact on Hong Kong's Hang Seng index, which climbed 2.00%. The Shanghai market also benefited, albeit more modestly, with a 0.40% gain. However, the picture was mixed across other Asian markets:

• Japan: The Nikkei index fell 2.00%, primarily due to pressure on tech shares.
• South Korea: Despite reporting record monthly semiconductor exports in August, Seoul's Kospi index declined.
• Indonesia: Jakarta's market experienced a significant drop of over 2.00%, amid unrest that tragically resulted in six deaths.

Global Market Context

The positive news from Alibaba comes against a backdrop of cautious sentiment in global markets:

• US Markets: Prior to the Labor Day weekend, US markets retreated from record highs, with both the Dow Jones Industrial Average and S&P 500 experiencing declines.
• Inflation and Interest Rates: A key US inflation reading has tempered expectations for Federal Reserve rate cuts, although a 25-basis point cut remains a possibility.
• European Inflation: In Germany, inflation rose in August for the first time this year, adding to the complex global economic picture.

Alibaba's Performance Highlights

Alibaba's stellar quarterly results were driven by several factors:

1. Strong Overall Performance: The 15% jump in share price indicates that the company significantly exceeded market expectations.
2. AI Revenue Surge: A notable increase in AI-related revenue suggests that Alibaba is successfully capitalizing on the growing demand for artificial intelligence technologies.
3. Market Confidence: The positive reaction from investors demonstrates renewed confidence in Alibaba's business strategy and growth potential.

Looking Ahead

As Alibaba continues to expand its AI capabilities and maintain strong growth in its core e-commerce business, investors and market watchers will be keen to see if this momentum can be sustained in the coming quarters. The company's performance could have broader implications for the tech sector and Asian markets as a whole.

However, as with all market movements, it's important for investors to conduct their own research and consider the broader economic context when making investment decisions.