Alibaba Group Holding Ltd‘s (NYSE: BABA) (NYSE: BABAF) stealth AI expansion may be Wall Street’s blind spot—but it’s Nvidia Corp’s (NASDAQ: NVDA) margin moat that’s directly in the crosshairs. CEO Eddie Wu has pledged to surpass the company’s $53 billion AI investment as demand for compute skyrockets, setting up a clash that could echo Beijing’s solar strategy a decade ago: flooding the market with cheaper supply, undercutting Western rivals, and rewriting the margin math.
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Nvidia’s Moat Under Siege
Nvidia has enjoyed a golden era, selling high-end GPUs at luxury pricing that has driven its gross margins above 70%. However, insiders warn that Alibaba’s scale-driven approach could erode those margins if cheaper AI compute saturates the market. This isn’t without precedent.
In the late 2000s, U.S. and European solar firms operated at gross margins of 30–40%. After Chinese manufacturers like LONGi and Jinko Solar entered with massive subsidized capacity, industry margins collapsed into the 5–15% range within just a few years. Demand for solar exploded, but profits evaporated.
The parallel is clear: when China industrializes a high-growth sector, pricing power doesn’t survive.
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The Desperate Tie-Up: Physical AI
Nvidia’s answer may be its “Physical AI” strategy—a blend of hardware and services designed to deepen integration and prevent GPUs from becoming interchangeable parts.
But history shows that moats can get shaky once China plays the volume game. Just ask First Solar Inc (NASDAQ: FSLR), which saw its 40% margins shrivel to the low teens by 2013. Once commoditization takes hold, it’s nearly impossible to claw back pricing power.
Investor Takeaway
Alibaba’s AI surge isn’t just about winning cloud market share in Asia—it could be the stealth margin killer for Nvidia’s global business.
With $53 billion in spending echoing the solar playbook, investors betting on endless 70% gross margins for GPUs may be overlooking a structural risk.
The AI hardware wars are only just beginning, and if history repeats itself, the cheaper side usually wins.
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