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Alibaba is reportedly setting up its own company to make a customized artificial-intelligence chip (BABA)

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  • Alibaba is setting up its own company to make a customized artificial intelligence chip, Reuters reported.
  • The chip, which is expected to be launched in the second half of 2019, could help Alibaba's fast-growing cloud and Internet of Things (IoT) businesses.
  • Alibaba's Tmall Genie, an AI-powered voice assistant, has been integrated with the company's interactive local services, such as Hema supermarket.
  • Watch Alibaba trade in real time here.

Alibaba is reportedly setting up its own company to make a customized artificial-intelligence chip for its fast-growing cloud and internet businesses.

The Chinese e-commerce giant aims to launch its first self-developed AI inference chip in the second half of 2019. It could be used for autonomous driving, smart cities and logistics, Alibaba announced Wednesday at an event in Hangzhou, China, according to Reuters.

Alibaba is in "a unique position to lead real technology breakthroughs in disruptive areas, such as quantum and chip technology" due to its advantages in algorithms and data, Alibaba Chief Technology Officer Jeff Zhang said, according to CNN

Its competitive cloud business should continue to drive its market share gain, Jefferies says.

"Apsara Deck, the cloud operating system powering AliCloud, shows better performance of single virtual machine with throughput more than 3 times that of closest competitor," Jefferies analyst Karen Chan said in a note sent out to clients on Wednesday.

"Less competitive pricing, lack of localization and incomplete compliance certification remain as the biggest hurdles for international vendors in China."

Chan added that Internet of Things (IoT) businesses, a network of physical devices embedded with electronics to connect and exchange data, remains as a key technology investment area for Alibaba.

Alibaba's Tmall Genie, an AI-powered voice assistant, has sold 5 million units since it was launched in July 2017, and has been integrated with healthcare and home appliance products from electronics manufacturers such as Phillips and Siemens, and also the Alibaba's interactive local services, such as Hema, the company said. Hema, a chain of supermarkets launched in 2015, is famous for its free 30-minute delivery and facial-recognition payment technology. It is described as the "pathfinder" of Alibaba's "new retail" strategy to go back to brick-and-mortar stores. 

Chan has a buy rating and $225  price target for Alibaba, 39% above where shares are currently trading.

Alibaba jumped 3.5% Wednesday, but is down 12% this year.

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