Alibaba to supply chips to Chinese telecom giant. What this means for the AI market

Alibaba's quotes jumped after the news that China's second largest telecom operator China Unicom will implement its AI chips in its new data center. In parallel, The Financial Times reported that China's regulator recommended local companies to stop buying Nvidia chips, which reinforces the import substitution policy and makes Alibaba's AI projects particularly significant. Against this background, the Hang Seng Tech indices rose to the highest level in almost four years thanks to large-scale investments in AI by Chinese giants.

Internet giant Alibaba has secured a major customer for its artificial intelligence chips, Chinese state media reported and a sourceconfirmed to CNBC.

According to this data, telecommunications company China Unicom plans to use Alibaba's AI gas pedals developed by its semiconductor division Pingtouge (T-Head). At the same time, Alibaba does not sell the chips directly - customers get access to their computing power through cloud services.

Alibaba shares rose 5.2 percent in Hong Kong trading, while depositary receipts in New York added 2.3 percent.

Alibaba's computing power will be used by China Unicom - China's second largest telecom operator - as part of a large-scale project of a new data center, CNBC writes. In addition to Alibaba's solutions, chips from other local manufacturers, including MetaX and Biren Technology, will be installed there.

Alibaba said it plans to invest 380 billion yuan ($53.5 billion) over three years to develop local AI infrastructure to reduce its reliance on U.S. technology, reflecting China's efforts to develop its own semiconductors for AI amid continued uncertainty surrounding Nvidia's access to that market. The FT reported on Wednesday that the internet regulator had asked local companies to stop buying certain chips from the U.S. manufacturer.

Earlier this week, Beijing accused Nvidia of violating antitrust laws. The company said it complies with all applicable rules and intends to cooperate with regulators.

The fact that Chinese companies, including Alibaba, Tencent, Baidu, JD.com, have recently started to actively invest in artificial intelligence, pushed the Hang Seng Tech Index to a maximum of almost four years, Bloomberg writes. In trading on September 17, the index, which tracks the largest technology companies, rose 4.2% and closed at its highest level since November 2021. The leader of the growth was the shares of search engine Baidu, up 16%.

The index is heading for its seventh consecutive week of growth, and has already added 42% since the beginning of the year - this is aided by investor confidence that large-scale investments by Chinese companies in AI will begin to yield results, the agency notes.

"Leaders in China's tech sector are clearly ramping up spending on AI and bringing out new products - AI models, robotaxis, proprietary chips - while proving they can monetize technology faster than expected," said Charu Chanana, chief investment strategist at Saxo Markets. - With multiples lagging the U.S., investors are starting to pay attention to China again."

According to Bloomberg Intelligence, the combined capital expenditure in AI by players such as Alibaba, Tencent, Baidu and JD.com will reach $32 billion by 2025. In 2023, it was $13 billion.

On September 16, it became known that Alibaba founder Jack Ma became actively involved in the company's affairs again after a long absence amid antitrust pressure from the authorities. He appeared several times on Alibaba campuses, which gave rise to rumors about his possible camouflage.

As Bloomberg notes, it's a signal that Beijing is easing policy toward internet giants after a period of heavy regulation in the early 2020s.

The company is now led by Ma's longtime associates Joe Tsai and Eddie Wu.

This article was AI-translated and verified by a human editor