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Alibaba and Baidu Turn to In-House Chips for AI Training Amid U.S. Restrictions

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Alibaba and Baidu have begun using their own internally designed chips to train AI models, partly replacing Nvidia’s processors, according to a report from The Information. The move signals a major shift in China’s AI development strategy, as U.S. export controls continue to restrict access to advanced American-made semiconductors.

Key Developments

  • Alibaba has used its homegrown chips since early 2025 to train smaller AI models.

  • Baidu is testing its Kunlun P800 chip to train new versions of its Ernie AI model.

  • Both companies still rely on Nvidia for their most advanced models but are working to reduce dependence.

Impact on Nvidia

Nvidia remains dominant in AI training hardware, but China accounts for a large share of its business. The firm’s most powerful U.S.-approved chip for China, the H20, lags behind the H100 and Blackwell series — but still outperforms most Chinese alternatives.

However, employees cited by The Information said Alibaba’s latest AI chip matches the performance of Nvidia’s H20, narrowing the gap between U.S. and Chinese hardware.

An Nvidia spokesperson responded: “The competition has undeniably arrived … We’ll continue to work to earn the trust and support of mainstream developers everywhere.”

Geopolitical Pressure

  • U.S. export restrictions have pushed Chinese companies to accelerate domestic chip design.

  • Beijing has urged firms to rely on home-grown semiconductor technology as part of its strategic autonomy push.

  • Nvidia CEO Jensen Huang recently said talks with the White House over permission to sell a less advanced next-gen chip to China will take time.

According to the report, Nvidia has agreed to give the Trump administration 15% of China sales of its H20 chips in exchange for continued export licenses.

The Bigger Picture

China’s pivot toward domestic AI chips marks both a risk to Nvidia’s China revenues and a milestone for Chinese chipmakers, who are beginning to close the performance gap under intense geopolitical and economic pressure.

Alibaba to Raise $3.2 Billion via Convertible Bond for Cloud and Global Expansion

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Alibaba announced Thursday it will raise $3.2 billion through the sale of a zero-coupon convertible bond, the largest such deal this year according to Dealogic, surpassing DoorDash’s $2.75 billion issue in May. The move underscores the Chinese tech giant’s push to scale its cloud computing and international e-commerce operations.

Use of Proceeds

  • ~80% will go toward data center expansion, tech upgrades, and cloud service improvements.

  • The remainder will be invested in boosting e-commerce efficiency and market presence.

Bond Terms

  • Convertible into Alibaba’s U.S.-listed shares.

  • Conversion premium: 27.5%–32.5% above U.S. stock price.

  • Maturity date: September 15, 2032.

Market Reaction

  • Hong Kong shares rose 2.3% to HK$146.1, reversing earlier losses and moving in line with the Hang Seng Index.

  • U.S.-listed shares fell 2.2% on Wednesday.

  • Year-to-date: Hong Kong stock up 71.6%, U.S. stock up 71.1%.

Cloud and AI Strategy

Alibaba is one of China’s largest AI investors, pledging 380 billion yuan ($53.4 billion) over three years. CEO Eddie Wu recently highlighted AI as central to cloud revenue growth, saying: “We are seeing an increasingly clear path for AI to drive Alibaba’s robust growth.”

The company has raised capital aggressively in recent years:

  • $1.5 billion via exchangeable bond in July.

  • $5 billion convertible bond in May 2023.

Broader Market Context

Convertible bonds are seeing strong momentum in Asia-Pacific. Issuance this year totals $27.8 billion, just shy of last year’s $28.7 billion, marking the strongest run in three years.

Alibaba’s fundraising aligns with a surge in Hong Kong’s equity capital markets, where investors favor convertible bonds for their equity upside potential alongside principal repayment guarantees if conversion is not exercised.

Alibaba’s Amap Enters Local Business Rankings, Challenging Meituan

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Alibaba’s mapping app Amap is expanding beyond navigation by launching AI-driven rankings for restaurants, hotels, and tourist destinations, directly competing with Meituan’s Dianping platform in the lucrative local-lifestyle services market.

Key Details

  • Street Stars Launch: Amap’s new feature, called Street Stars, ranks local businesses for its 170 million daily active users.

  • Financial Incentives: Alibaba is offering 1 billion yuan ($140 million) in subsidies for coupons on ride-hailing and in-store services.

  • Coverage: The service initially spans 300 cities and 1.6 million local business listings.

Competitive Landscape

  • Meituan’s Response: Meituan countered with 25 million coupons tied to top-rated restaurants, signaling an intensifying rivalry.

  • Instant Retail Battle: Both firms are locked in a discount-heavy price war in China’s booming one-hour delivery and lifestyle services segment.

  • CEO Vision: Alibaba CEO Eddie Wu described Amap’s AI transformation as a step toward making it a “gateway for future lifestyle services.”

Regulatory Angle

  • Scrutiny Rising: Chinese regulators have repeatedly warned against race-to-the-bottom pricing strategies and have summoned top firms for discussions.

  • Economic Context: The competition comes as consumer spending remains weak due to housing market troubles and job insecurity, pushing platforms to rely on aggressive subsidies.

Implications

Amap’s pivot signals Alibaba’s intent to build a comprehensive consumption ecosystem, but regulators’ intervention could determine how far the subsidy-driven price war continues in China’s local services and lifestyle economy.