Alibaba is developing a new artificial intelligence (AI) chip aimed at enhancing China's semiconductor capabilities amid rising US-China geopolitical tensions. The chip is designed specifically for AI inferencing, which involves running AI applications, rather than training large models. Alibaba's semiconductor division, T-head, previously released inference chips such as the Hanguang 800 in 2019, and is now working on a more versatile chip to support AI workloads in data centers. The move reflects China's broader strategy to develop homegrown chips, reducing reliance on US firms like Nvidia, which has faced export restrictions to China, including the suspension of its H20 AI system shipments. Alibaba's new chip is expected to be used alongside other vendors' semiconductors, including Nvidia, which still supplies chips capable of both training and inferencing. Alibaba's cloud revenue has increased by 26% year-over-year, driven by AI-related products, as the company plans to invest at least 380 billion yuan ($53.1 billion) over the next three years into AI infrastructure. The company's stock rose 12% following the announcement, contrasting with Nvidia's recent stock decline amid market jitters about future demand for AI chips. Chinese rivals such as Baidu and Huawei are also developing their own AI semiconductors, with Cambricon reporting a 4,000% surge in revenue in the first half of 2025. The development of domestic chips is part of China's effort to secure technological independence and compete with US tech giants in the AI sector.