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.
