Alibaba And Baidu Turn To Chinese AI Chips As US Sanctions Squeeze Nvidia Supply

China’s leading technology companies, including Alibaba Group Holding BABA, Tencent Holding TCEHY and Baidu Inc BIDU have begun switching to homegrown chips to develop artificial intelligence as the dwindling stockpile of Nvidia Corp NVDA processors and U.S. export controls erode their ambitions.

Growing geopolitical tensions with China led Donald Trump’s administration to clamp down on sales of Nvidia’s H20 in April, prompting the companies to step up contingency planning, the Financial Times reported on Thursday, citing unnamed sources familiar with the matter.

Uncertainties mount over Nvidia’s ability to offer a new processor for China that is compliant with Trump’s export rules and competitive against domestic rivals.

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New chip orders typically take three to six months to ship.

Shen Dou, head of Baidu’s AI cloud group, expressed optimism during an analyst call, saying that domestically developed self-sufficient chips and homegrown software stacks will gradually replace Nvidia.

Alibaba chief Eddie Wu, in an earnings call, talked about actively exploring diversified solutions to meet demand.

China Institutes of Contemporary International Relations’ social media post quoted domestic entities in China as having already begun large-scale procurement and use of Ascend chips.

Most companies are considering a hybrid approach, with AI training continuing to run on existing Nvidia chips while adopting local processors for inference.

Analysts at GF Securities told the Financial Times that they expect Nvidia to start producing its next chips for China by early July.

Nvidia said it had incurred a $4.5 billion charge in the first quarter related to H20 excess inventory and purchase obligations. H20 product sales were $4.6 billion for the first quarter before the new export licensing requirements.

Chinese companies, including ByteDance, Alibaba and Tencent, hoarded Nvidia’s H20 AI chips amid US sanctions. They aimed to snap up one million H20s before the latest US semiconductor sanctions. The companies reportedly placed over $16 billion in orders for the quarter. 

Reportedly, Nvidia bagged $18 billion of H20 orders since 2025.

China generated $17 billion in revenue in fiscal 2024, accounting for 13% of Nvidia’s total sales.

Price Actions: At the last check on Friday, NVDA stock was down 0.06% at $139.10. BABA is down 0.84%.

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