Alibaba expects higher gross margin and profitability by swapping purchased chips for its own

Alibaba is betting that the fastest way to fatten margins in AI cloud computing is to stop buying someone else’s chips and start using your own. The company’s internal semiconductor arm, T-Head, is now deeply embedded in the infrastructure powering its data centers, and management expects the swap to meaningfully boost gross margins and overall profitability. The chip math T-Head has reached cumulative shipments of 470,000 AI chips. Over 60% of those chips are allocated to external customers across sectors including internet services, finance, and autonomous vehicles. Management’s commentary for Q4 of fiscal year 2026 pointed to T-Head deployment as a lever that could improve gross margins, which recently sat at 34.5%. The latest hardware backs up the ambition. Alibaba’s Zhenwu M890 chip delivers roughly triple the performance of its predecessor while targeting cost-effectiveness. Building at scale with China Telecom Alibaba recently partnered with China Telecom to establish a joint AI data center. The initial deployment: 10,000 Zhenwu processors, with architecture designed to scale up to 100,000 units. Cloud revenue is already moving Alibaba Cloud Intelligence Group posted 38% yea...