TLDR
- Alibaba developed a new AI chip manufactured by a Chinese company to reduce dependency on Nvidia processors
- Q1 fiscal earnings beat profit expectations with $5.9 billion net income vs $3.7 billion estimate
- Revenue of $34.6 billion missed forecasts of $35 billion but grew 2% year-over-year
- Cloud computing segment jumped 26% to $4.7 billion, exceeding expectations
- Stock rose 3.9% in premarket trading following earnings and chip development news
Alibaba Group reported mixed first-quarter fiscal results that beat profit expectations while missing revenue targets. The Chinese e-commerce giant posted net income of $5.9 billion compared to analyst estimates of $3.7 billion.
Revenue came in at $34.6 billion, falling short of the roughly $35 billion forecast. However, this still represented 2% growth from the previous year during an intense price war with domestic competitors.
The 76% jump in net income stemmed largely from equity investments and gains from selling Turkish shopping platform Trendyol. This offset decreased operational income as the company battles for market share in China’s retail space.
Alibaba Group, $BABA, Q1-25. Results:
📊 Adj. EPS: $2.06 🟢
💰 Revenue: $34.57B 🔴
📈 Net Income: $6.02B
🔎 Cloud Intelligence revenue surged, with AI-related product revenue now a major contributor from external customers. pic.twitter.com/fkT4vkzsRv— EarningsTime (@Earnings_Time) August 29, 2025
American depositary receipts climbed 3.9% to $124.27 in premarket trading. The stock initially dropped after earnings before recovering as investors processed the results and other company developments.
New AI Chip Development
The Wall Street Journal reported that Alibaba has created a new artificial intelligence chip that’s more versatile than previous versions. The processor is designed to handle a broader range of AI inference tasks and is currently undergoing testing.
Unlike an earlier Alibaba AI chip manufactured by Taiwan Semiconductor, this new processor is being made by a Chinese company. This shift reflects the growing focus on domestic technology amid regulatory challenges for foreign chip suppliers.
Nvidia faces effective sales restrictions in China due to opposition from Chinese authorities. The U.S. chip giant’s H20 processor, its most powerful AI chip allowed for sale in China, was blocked earlier this year by the Trump administration.
Chinese companies including Huawei, Cambricon, and Baidu are racing to develop alternatives to Nvidia’s H20 chip. While experts believe China still lags behind in matching Nvidia’s most advanced capabilities, domestic chip development continues accelerating.
Strong Cloud Performance
Alibaba’s cloud computing segment showed particular strength with 26% growth to $4.7 billion in revenue. This exceeded analyst expectations of $4.5 billion and highlights the company’s position in China’s expanding cloud market.
CFO Toby Xu said the strength of core businesses provides confidence and resources for investments in quick commerce and AI initiatives. The cloud division remains a key growth driver for the company’s long-term strategy.
The China commerce business, including Taobao and Tmall platforms, generated $19.6 billion in revenue with 10% growth. However, profits in this segment dropped 21% to $5.4 billion due to heavy investments in instant retail services.
Alibaba continues investing in same-day delivery capabilities, offering goods delivered within an hour of ordering. This strategy aims to compete with rivals JD.com and Meituan in China’s competitive retail landscape.
The ongoing price war has driven up transaction volumes but pressured margins across the industry. Meituan reported an 89% drop in quarterly adjusted net profit and warned of losses in the current quarter due to price competition.
Benchmark analyst Fawne Jiang maintains a Buy rating with a $176 price target, citing Alibaba’s positioning as a leading AI and cloud infrastructure provider. The analyst recommends building exposure on stock dips.
Alibaba shares have outperformed China’s broader market this year, rising over 40% compared to the MSCI China index’s 28% gain. The company was selected as a Barron’s stock pick in October due to cheap valuation and AI ventures.
The new AI chip is manufactured by a Chinese company and is currently in testing phase, according to people familiar with the matter.
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