China spent the last year building an alternative to Nvidia. Then, everything changed in a single week. On Wednesday, Tencent and Alibaba announced they were ramping up domestic chip production.
on thursday, reuters It was reported that the US has approved the sale of Nvidia to major Chinese companies. On Friday, Treasury Secretary Scott Besant said he had never heard of the approval.
When the US blocked Nvidia from selling advanced chips to China in 2023, the Chinese tech giant had no choice but to create an alternative. James Mitchell, Tencent’s chief strategy officer, said Wednesday that the company will dramatically increase capital spending, especially in the second half of the year, as China-designed GPU chips “will be available to us month after month.”
Alibaba’s chip division, T-Head, has achieved “mass production” of proprietary GPUs, an executive said on the company’s earnings call.
Moore Threads, MetaX, and Huawei have launched competing products. Chinese chip companies posted record revenues. Alibaba now designs chips specifically for its own data centers, giving the company a structural advantage: It controls both the hardware and the software that runs on top of it.
“In a compute shortage environment, this structural advantage is conducive to our revenue growth and gross margin improvement,” an Alibaba executive said.
This contradicts reports for months that the US would approve shipments of less powerful chips like the H20. Each time, China’s government reportedly encouraged local companies to buy domestic alternatives instead.
Neil Shah, partner at Counterpoint Research, provides perspective. Chinese companies are turning their attention to “agent AI,” AI systems that perform complex, multi-step tasks autonomously. “Chinese hyperscalers can’t wait,” Shah said. “The race toward agentic AI has shifted from training to scaling inference at scale.”
If Shah is right, China’s domestic chips may be powerful enough for training, but inadequate for the inference workloads demanding agentic AI.
