Alibaba unveils new AI chip as China races to replace Nvidia’s H20 amid U.S. ban

Alibaba is testing a new artificial intelligence chip that could play a big role in China’s push to cut reliance on U.S. technology. The Wall Street Journal reported Friday that the chip, developed in-house, is built to handle a wider range of AI inference tasks than its predecessors. Unlike Alibaba’s earlier processors that relied on Taiwan Semiconductor Manufacturing, this one is being fabricated by a Chinese company.

The move comes as Beijing leans harder on its tech giants to develop homegrown alternatives after Washington tightened restrictions on Nvidia’s sales in China. Nvidia’s H20 chip—the most advanced processor it can legally sell in the country—was effectively blocked earlier this year by the Trump administration. Although U.S. regulators recently allowed Nvidia to resume sales of the H20, the uncertainty has pushed Chinese firms to build replacements.

“Chinese chip companies and artificial-intelligence developers are building up their arsenal of homegrown technology, backed by a government determined to win the AI race with the U.S. The latest example: China’s biggest cloud-computing company, Alibaba, has developed a new chip that is more versatile than its older chips,” WSJ reported.

China’s AI Push: Alibaba Builds Chip to Rival Nvidia’s Restricted H20

Nvidia created the H20 specifically for China after export controls in 2023 shut out its higher-performing H100 and Blackwell chips. Still, the H20 falls short of those models in computing capability. That gap has only intensified pressure on local players like Alibaba and ByteDance to accelerate their own designs, especially as Beijing grows wary of dependence on U.S. suppliers.

For Alibaba, the timing may prove fortuitous. The company reported a 26% revenue jump in its cloud computing unit for the April–June quarter, topping market forecasts. Demand for AI infrastructure has been a key driver, making a homegrown processor both a strategic hedge and a potential boost to its cloud services business.

Alibaba, already China’s largest cloud provider and a major Nvidia customer, now finds itself at the intersection of Washington’s export curbs and Beijing’s industrial ambitions. If its new chip proves viable, it could mark a significant step in China’s effort to secure its AI future on its own terms.

For years, Alibaba was one of Nvidia’s top customers in China. That relationship has shifted after Washington imposed tighter export rules on advanced chips. Nvidia’s H20—the most powerful AI chip it can legally sell in China—was blocked earlier this year by the Trump administration, creating a scramble for substitutes. U.S. officials later allowed Nvidia to resume sales of the H20, but Beijing quickly instructed Chinese firms not to buy the processors, citing security concerns that Nvidia has rejected.

The result has been a burst of activity across China’s chip sector. Shanghai-based MetaX recently introduced a chip it claims can stand in for the H20, with more memory but higher energy consumption. MetaX said it is preparing for mass production, signaling that the search for credible alternatives is picking up speed.

Still, insiders acknowledge that China’s chipmakers remain far from matching the performance of Nvidia’s most advanced processors, which remain off-limits under U.S. export rules. American restrictions on access to top-end manufacturing technology continue to hold back Chinese foundries, keeping them a generation behind.

Alibaba’s timing may prove strategic. The company just reported a 26% jump in cloud revenue for the April–June quarter, outpacing expectations. Demand for AI infrastructure is surging, and a homegrown processor could strengthen its position while insulating its business from geopolitical uncertainty.

With Washington tightening controls and Beijing urging self-sufficiency, Alibaba’s new chip is both a symbol and a test case for China’s broader ambition: building an AI ecosystem that no longer hinges on Nvidia.