Alibaba Group Holding Ltd (NYSE:BABA) (NYSE:BABAF) has just raised the stakes in the U.S.–China tech rivalry. The Chinese e-commerce and cloud giant has unveiled a new AI chip designed to reduce reliance on Nvidia, Washington's favorite export-turned-bargaining chip.

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The chip's debut comes as U.S. export rules bite: Nvidia's H20, the most powerful AI processor Washington still allows into China, has been hamstrung by political whiplash. President Donald Trump permitted shipments in July, but Beijing swiftly discouraged purchases over "security risks."

Enter Alibaba, MetaX, Cambricon and Huawei — Chinese companies racing to fill the gap. MetaX's upcoming chip boasts larger memory than the H20, Cambricon just posted a blockbuster $247 million quarter and Huawei is pushing monster clusters of 384 Ascend chips, claiming performance that on some metrics rivals Nvidia's Blackwell.

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The chip also reflects a deeper bottleneck: China can't yet mass-produce cutting-edge semiconductors due to U.S. tech bans. Instead, firms like MetaX are improvising — stitching two smaller chips together to mimic advanced performance.

Beijing, meanwhile, is pouring billions into AI self-sufficiency, signaling that Washington's chokehold may not last forever.

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