Alibaba Stock Soars After Stunning Earnings Beat as the Tech Giant Eyes Bold Move to Replace Nvidia Chips

Alibaba, the Chinese e-commerce and technology giant, witnessed a sharp rise in its stock following a quarterly profit that exceeded expectations, even as revenue fell slightly short amid fierce competition in China. The company is also preparing to replace Nvidia’s AI chips with a domestically produced alternative, signaling a transformative shift in its technology and supply chain strategy.

This article explores Alibaba’s recent financial performance, strategic initiatives in AI, market position, and what the future may hold for one of China’s most influential tech firms.

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Alibaba’s Background and Business Transformation

Founded as a leading e-commerce powerhouse, Alibaba has long dominated China’s online retail landscape through its flagship platforms, Taobao and Tmall. Over time, the company has expanded its digital trade presence beyond China, targeting international markets with platforms such as Lazada in Southeast Asia and Trendyol in Turkey. These international ventures recently reported revenue growth of 29%, reflecting Alibaba’s effort to offset slowing growth in China’s mature e-commerce sector.

Alibaba has also transformed its cloud business, integrating large language models (LLMs) from its Qwen AI family to enhance services across its ecosystem. This development has attracted AI-focused clients, boosting cloud adoption and creating new revenue streams.

Shifting consumer trends and evolving competition have further prompted Alibaba to explore instant retail and rapid commerce solutions, including on-demand delivery. While this strategy increases operational costs and short-term pressure on profitability, it strengthens Alibaba’s ability to capture emerging markets and adapt to changing consumer behaviors.

Earnings Beat Despite Revenue Pressure

Alibaba reported a remarkable net income of $5.9 billion for the fiscal first quarter ending June 25, 2021, representing a 76% increase compared to the previous year. This figure far exceeded analysts’ projections of $3.7 billion. However, revenue reached $34.6 billion, slightly below the expected $35 billion, reflecting slower growth of just 2% year-over-year.

The muted revenue growth is largely due to intense price competition from local rivals such as JD.com and Meituan, which pressured profit margins despite high transaction volumes.

Alibaba’s China commerce segment, encompassing Taobao and Tmall, grew revenue by 10% to 19.6 billion yuan. The company’s focus on instant retail—delivering goods within an hour—is a key factor in maintaining market share in a highly competitive landscape.

Meanwhile, Alibaba’s cloud division achieved revenue growth of 26% year-over-year, reaching $4.7 billion and surpassing expectations. The rising demand for AI products and cloud services has bolstered Alibaba’s cloud business, making it a core driver of the company’s growth strategy.

Strategic Shift: Replacing Nvidia AI Chips

Alibaba is testing a new AI chip designed to replace Nvidia’s widely used H100 inference chip, marking a major strategic move. Produced locally in China, this chip minimizes reliance on foreign suppliers like Taiwan Semiconductor Manufacturing Co. (TSMC) and circumvents U.S. export restrictions on advanced technology.

Unlike Nvidia’s high-end H100 training chips, Alibaba’s AI chip focuses on inference tasks, utilizing RISC-V open-source architecture to reduce costs and dependence on imported technology. This move aligns with Alibaba’s $53 billion planned investment in AI and cloud technologies over the next three years, strengthening its competitive position amid global tech tensions.

While China still trails Nvidia in high-level AI training performance, the new chip represents a significant step toward self-reliance and resilience in an increasingly geopolitically complex environment.

Alibaba’s Market Performance and Investor Sentiment

Following the earnings announcement, Alibaba’s stock surged more than 12%, reaching around $130 in early trading. Year-to-date, the stock has gained over 40%, outperforming the MSCI China Index, which rose approximately 28%.

Investor confidence has been reinforced by Alibaba’s robust share buyback program, which totaled $11.9 billion in fiscal 2025. This indicates management’s belief in the long-term value of the company despite ongoing trade and tariff concerns impacting Chinese stocks.

Analysts are optimistic about Alibaba’s positioning in cloud computing and generative AI. Benchmark highlights the company’s leadership in AI and cloud infrastructure, maintaining a buy rating and target price of $176. Alibaba’s diverse ecosystem—spanning e-commerce, cloud computing, and AI—provides stable revenue streams and supports long-term growth potential.

Strategic Growth

Alibaba is poised to sustain growth across its traditional e-commerce and cloud divisions, thanks to continued investment in AI and cloud technologies. Analysts project a revenue compound annual growth rate (CAGR) of 7% and an adjusted EBITDA CAGR of 11% through fiscal 2028.

The development of domestic AI chips positions Alibaba to reduce dependence on U.S. technology, potentially reshaping its hardware ecosystem. However, technical challenges remain, particularly in competing with Nvidia’s high-end AI training chips. A hybrid model combining localized inference chips with Nvidia solutions may emerge as an effective strategy in the near term.

Alibaba’s Long-Term Strategic Vision

Alibaba’s fiscal Q1 results underline the company’s resilience and adaptability. Strong earnings, combined with cloud expansion and AI initiatives, showcase a company moving confidently toward technological autonomy.

The AI chip initiative exemplifies Alibaba’s strategic foresight in addressing global semiconductor supply chain risks. By investing heavily in AI and cloud technology, Alibaba not only enhances its competitiveness but also positions itself as a leader in the next wave of technological innovation.

Despite short-term pressures from competitive pricing and geopolitical uncertainties, Alibaba’s diversified business model, rapid cloud AI growth, and commitment to long-term innovation place it in a strong position to thrive in the evolving global tech landscape.

Frequently Asked Questions:

Why did Alibaba’s stock soar recently?

Alibaba’s stock surged following a quarterly earnings report that beat expectations, driven by stronger-than-anticipated profits and growth in its cloud and AI divisions.

Did Alibaba meet its revenue targets?

While Alibaba exceeded profit forecasts, its revenue fell slightly short due to intense price competition in China’s e-commerce market.

What is Alibaba’s plan regarding Nvidia AI chips?

Alibaba is testing a domestically produced AI chip designed to replace Nvidia’s H100 inference chips, aiming to reduce reliance on foreign technology and strengthen supply chain resilience.

How will the new AI chip impact Alibaba’s business?

The chip enhances Alibaba’s AI capabilities, supports its cloud services, and positions the company for long-term technological independence and competitiveness.

Is Alibaba only focusing on AI and cloud growth?

No. Alibaba continues to invest in its core e-commerce platforms like Taobao and Tmall while expanding into international markets and rapid commerce solutions to capture emerging trends.

How do analysts view Alibaba’s stock performance?

Analysts are optimistic, highlighting strong earnings, cloud and AI growth, and the company’s diversified ecosystem. Several maintain a “buy” rating with a positive outlook for long-term growth.

What challenges does Alibaba face in its AI strategy?

While the new chip strengthens inference capabilities, Alibaba still lags behind Nvidia in high-end AI training chips, making hybrid solutions and ongoing innovation essential.

Conclusion

Alibaba’s recent earnings beat and strategic push to develop domestic AI chips highlight the company’s resilience and forward-thinking approach. Despite revenue pressures from intense competition in China, Alibaba continues to expand its cloud and AI capabilities while maintaining leadership in e-commerce. The move to replace Nvidia chips with locally produced AI hardware underscores Alibaba’s commitment to technological independence and long-term growth. By combining innovation, diversification, and strategic investments, Alibaba is well-positioned to navigate geopolitical challenges and evolving global markets.