Alibaba, Baidu use own AI chips in move away from US: report

Chinese tech giants Alibaba and Baidu have begun deploying their own internally developed AI chips, Zhenwu and Kunlun P800, respectively, to train their AI models, partially substituting Nvidia's offerings. This strategic pivot is largely a response to US export restrictions on advanced semiconductors, underscoring China's push for domestic technological self-sufficiency. While anticipated by analysts, the long-term efficacy of this strategy and its implications for future foreign chip adoption remain key considerations, with Nvidia's China revenue expectations already adjusted.

Analysis

Alibaba (BABA) and Baidu (BIDU) are actively integrating their proprietary semiconductors, the Zhenwu and Kunlun P800 chips respectively, into their AI model training workflows. This strategic move, driven by US export controls on advanced chips, represents a partial substitution for Nvidia's (NVDA) products and underscores China's accelerated push for technological self-sufficiency. According to the report, Alibaba's deployment for smaller AI models began in early 2025, while Baidu is testing its chips on its Ernie AI model. Analyst commentary from Wedbush indicates this development was largely anticipated. However, significant questions remain regarding the long-term efficacy of this strategy, particularly given the process technology limitations of Chinese foundries and whether these firms would revert to foreign suppliers if more powerful US chips become available. For Nvidia, the financial impact may already be priced in, as analysts believe China revenue expectations were adjusted following the company's recent earnings report.

Key Decisions for Investors

• Investors in Alibaba and Baidu should monitor for disclosures on the performance and scalability of their in-house AI chips, as their competitiveness against foreign alternatives is a key variable for long-term AI capabilities.
• For Nvidia, this news confirms the materialization of a known risk, but since it was reportedly anticipated by the market, investors should focus on the performance delta between its products and these new domestic chips to assess the durability of its competitive moat.
• The trend highlights a deepening technological bifurcation, prompting a review of portfolio exposure to companies heavily reliant on the US-China semiconductor supply chain and favoring those with diversified or localized production capabilities.