China's answer to Nvidia: Why Alibaba is preparing to list its subsidiary

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China's answer to Nvidia

T-Head steps out of the shadows

On November 10, Alibaba announced plans to list its subsidiary T-Head on the Hong Kong Stock Exchange. The chipmaker had already filed a confidential IPO application in September. Alibaba has received permission to proceed with the spin-off process, although the listing itself still requires final approval from the exchange and Chinese regulators.

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T-Head shares are expected to be offered to retail and institutional investors. The IPO date, offering size, and company valuation have not yet been disclosed. Alibaba currently owns 100% of T-Head and expects to retain control of the subsidiary after the listing.

Alibaba established T-Head in 2018 to develop its own processors for data centers and artificial intelligence systems. In September, the subsidiary unveiled the Zhenwu V900 accelerator for AI model training and inference. According to Alibaba, the chip delivers three times the performance of its predecessor, the Zhenwu M890. Mass production of the new processor is scheduled for the first quarter of 2027. Meanwhile, Zhenwu-series chips are already used by more than 650 customers across the automotive, financial, energy, and other industries.

Alibaba's plans have yet to generate much enthusiasm in the stock market. During trading on November 11, the company's Hong Kong-listed shares fell about 1%, extending the previous day's decline. In contrast, when Bloomberg first reported preparations for T-Head's IPO in January, Alibaba's American depositary receipts jumped as much as 7.4%.

Why Alibaba wants to separate its chip business

By taking T-Head public, Alibaba hopes to attract investors interested specifically in AI chip manufacturing rather than e-commerce. According to the company's official statement, a separate IPO would allow the market to value T-Head independently of Alibaba's other businesses. The chipmaker would also be able to raise funds on its own through share offerings, bond issuance, and bank loans.

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The reasons behind this strategy are evident in Alibaba's financial results. In the second quarter of 2026, the company's net income plunged 75% to $1.54 billion, even as revenue continued to grow. One reason was rising technology-related expenses.

Artificial intelligence development has become particularly expensive. Alibaba has announced plans to invest more than $53 billion in AI and cloud infrastructure over three years. In April–June alone, the company spent nearly $10 billion on equipment and infrastructure development.

At the same time, Alibaba's cloud business is growing rapidly and is already profitable. However, its AI models and applications business remains unprofitable. The division that includes the Qwen AI model recorded approximately $2 billion in losses during the quarter.

Chinese chips challenge Nvidia

To recoup its enormous investments in artificial intelligence, Alibaba needs not only to develop its own AI services but also to sell technology to other companies. This is where T-Head has an opportunity to generate revenue. U.S. export restrictions have made it increasingly difficult for Chinese companies to purchase advanced Nvidia processors, prompting them to seek domestic alternatives. For example, China Unicom, China's second-largest mobile operator, has already signed a contract to use T-Head chips in a new data center.

However, Alibaba is far from the only company targeting this market. Huawei, Cambricon, and Baidu are also developing their own AI processors. Meanwhile, Nvidia remains the industry's technology leader. Although Alibaba claims its chips deliver high performance, there is still insufficient independent testing to directly compare them with Nvidia's most advanced products.

The situation in China's stock market creates another challenge. Regulators are tightening their scrutiny of technology IPOs amid concerns that the AI boom has pushed company valuations too high. For example, memory chipmaker YMTC has suspended preparations for a $4.9 billion listing. Baidu may also postpone the IPO of its AI chip subsidiary Kunlunxin until 2027.

Can T-Head meet investors' expectations?

An IPO would allow T-Head to raise funds independently for processor development while giving investors an opportunity to assess the market value of Alibaba's chip business separately. However, the listing itself will not halt rising AI spending or guarantee a recovery in profits. To achieve that, T-Head will need to increase sales and demonstrate that AI chip manufacturing can generate profits rather than simply require further investment.

Alibaba has an opportunity to benefit from growing demand for Chinese alternatives to Nvidia, but competition in this market is intensifying rapidly. If T-Head establishes itself among the leading chipmakers, it could support Alibaba's share price and reduce the company's dependence on e-commerce. Otherwise, its bet on artificial intelligence risks becoming another costly investment with uncertain returns.

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