Chinese companies are increasing orders for Nvidia's H20 artificial intelligence chip due to rising demand for DeepSeek's cost-effective AI models, according to six sources familiar with the situation. This surge in demand, newly reported by Reuters, highlights Nvidia's market dominance and could mitigate concerns that DeepSeek might reduce AI chip demand.
"Tencent, Alibaba, and ByteDance have significantly augmented their orders for the H20 chip, designed specifically for China due to U.S. export regulations, since the emergence of the Chinese AI startup on the global stage last month," two sources revealed.
Apart from their internal requirements for advanced AI chips, these tech giants also offer cloud computing services for other firms to access AI tools. Smaller companies in sectors like healthcare and education are now acquiring AI servers with DeepSeek models and Nvidia H20 chips, according to a source at a major server manufacturer in China. This marks a shift from traditionally being predominantly utilized by financially robust establishments in finance and telecommunications.
While President Donald Trump's administration has imposed restrictions on the sale of the H20 chip to China, sources attribute the spike in orders to DeepSeek. However, specific order quantities were not disclosed by the sources, who opted to remain anonymous due to lack of authorization to speak with the media.
When asked about the extent of demand for the H20 chip from China, Nvidia did not provide details but emphasized that their products excel through merit in a competitive industry. The company is scheduled to release a report on Wednesday.
Tencent, ByteDance, and Alibaba did not respond to requests for comment on the matter.
DeepSeek's powerful language models, focusing on inference to yield conclusions at a lower cost, have gained recognition for their performance matching Western systems. This strategy optimizes computational efficiency rather than relying solely on processing power.
Further, while DeepSeek's models had triggered a global market downturn for AI stocks starting January 24, with Nvidia shares experiencing a temporary drop, the stocks have since recovered most of the lost ground and are down only 3% year-to-date.
Despite the rising deployment of DeepSeek AI models expected to benefit Chinese chipmakers in the domestic market, Nvidia's H20 chip continues to represent the industry standard in China.
Industry analysts project that Nvidia shipped around 1 million H20 units in 2024, resulting in over $12 billion in revenue for the company. The H20 is the primary chip that Nvidia is legally authorized to sell in China, introduced following the latest round of U.S. export restrictions enforced in October 2023. Washington has banned the export of Nvidia's most advanced chips to China from 2022 onwards, citing concerns about potential military applications in China.
Many Chinese companies have integrated DeepSeek's models, including Tencent planning to beta test integrating the models into its popular WeChat messaging app, and automaker Great Wall incorporating DeepSeek's model into its connected vehicle system.