Alibaba $BABA stock jumped nearly 13% last Friday 8/29 after reports of progress on its AI chips. I got a bunch of questions, and I don’t have anything to add on the news but maybe a few points that add a “but also” to the dominant “it’s policy and sanctions driving everything!” perspective

1) The focus on sanctions and self-reliance is incomplete imo. Sanctions accelerate. Policy supports. But market realities do the most to force companies to move very quickly imo

2) The business logic is clear. The cloud providers and big tech have all at least attempted to build their own chips. Alibaba set up its chip arm in 2018. Chips are now basic infrastructure. If you are a large cloud owner / provider, owning the entire stack is the rational play.

3) Supply is not the binding constraint everywhere. At WAIC in Shanghai this July, a well-regarded research firm found vendors readily offering high end NVIDIA chips on the expo floor. If random attendees are being offered “the good stuff,” at least some pockets of supply are looser than the “scarcity” story suggests, again imo

4) The deeper driver on everyone’s mind I spoke to is price. On the Tech Buzz China July 2025 AI Trip, we saw that many comparable AI services in China were at least 70% cheaper than U.S. equivalents. Not promotional pricing. Simply due to the very low pricing that domestic buyers will pay. That low umbrella sets the entire industry’s economics honestly, although of course it may not always stay this way

5) That price reality will for sure drive domestic chip innovation. We are hearing all those rumors about lower precision lower compute optimizations. (eg DeepSeek’s recent format comment). Chinese firms were always going to “involute” on chips. Sanctions sped it up. Policies gave cover. But business realities are like real hard constraints.

-Rui