AliCloud is likely a big customer of Nvidia and could have trouble getting advanced chips, Baird analyst notes

Alibaba’s cloud business, AliCloud, is in the crosshairs of the Trump administration’s trade war with China, one Wall Street analyst said.

Alibaba Group Holding Ltd.’s U.S.-listed shares fell about 5% on Wednesday, with one analyst noting that the company’s cloud business is in the “crosshairs” of the Trump administration’s trade war with China.

Nvidia Corp. disclosed late Tuesday that it is facing new restrictions on its sales to China, and Baird Equity Research analyst Colin Sebastian said the development could hurt Alibaba’s ability to continue accelerating its revenue growth in its AliCloud cloud-computing business.

Nvidia now needs a license from the U.S. government to export its H20 chips, which are models that had already been downgraded in order to comply with existing rules for the Chinese market. A Melius Research analyst noted that Nvidia’s move to write off billions in H20 inventory suggests the company isn’t optimistic about its ability to get those licenses.

Alibaba is “a likely large customer of H20s,” Baird’s Sebastian said in a note to clients. “In China, we believe the combination of DeepSeek + H20 chips proved to be a compelling combination for [artificial intelligence] model development, although the U.S. government is concerned the chips could be used to power development of restricted supercomputers.”

Sebastian added that Nvidia’s problems exporting its H20 chip could delay some of Alibaba’s more advanced generative-AI initiatives and will likely create new urgency in China for domestic alternatives to the graphics processing units designed by Nvidia and Advanced Micro Devices Inc.. Right now, Alibaba likely uses a mix of Nvidia GPUs, domestic offerings and its own custom chips.

For Alibaba, the setback is especially disappointing because AliCloud has been a “bright spot” for the company, “as e-commerce competition remains intense,” Sebastian said.

On Tuesday, Nvidia said in a regulatory filing that it would be taking a charge of $5.5 billion in its fiscal first quarter associated with the write-down of inventory and customer contracts for its H20 chip, after the U.S. government said the company needed an export license to sell the chip to the Chinese market, including Hong Kong and Macau. Nvidia did not offer any further explanation, and it is not yet clear if it will offer another type of GPU for the Chinese data-center market.

Sebastian maintained an outperform rating on Alibaba’s stock, with a price target of $147. Alibaba’s U.S.-listed stock is still up 27% on a year-to-date basis.