Six sources familiar with the situation said that the increasing demand for DeepSeek’s low-cost AI models is driving Chinese enterprises to increase their orders for Nvidia’s (NVDA.O) new tab H20 artificial intelligence processor.
The spike in orders, which Reuters is reporting for the first time, highlights Nvidia’s market leadership and may allay worries that DeepSeek could lead to a decline in demand for AI chips.
According to two sources, since the Chinese AI firm made headlines across the world last month, Tencent (0700.HK), Alibaba (9988.HK), and ByteDance have “significantly increased” orders of the H20, a chip unique to China because of U.S. export prohibitions.
Apart from their in-house need for cutting-edge AI processors, the three digital behemoths provide cloud computing services that let other businesses access and utilize AI technologies.
According to a source at one of China’s biggest server manufacturers, smaller businesses in industries like healthcare and education are also investing in AI servers with DeepSeek models and Nvidia H20 processors. According to the source, servers equipped with AI computing systems were previously only purchased by wealthy banking and telecom companies.
According to media, the administration of US President Donald Trump is considering limiting the H20 chip’s exports to China. The sources pointed to DeepSeek as the cause of the spike in orders, however the possibility of more restrictions might also have contributed.
The size of the orders was not specified by the sources. They refused to be named and were not authorized to speak to the media.
Nvidia said that its products were chosen “on merit in a competitive field” but did not answer questions about the amount of demand it was receiving from China for the H20. On Wednesday, the business is scheduled to release its quarterly profits.
Requests for comment from Alibaba, ByteDance, and Tencent were not answered.
Because DeepSeek concentrates on “inference” or drawing conclusions, its huge language models perform on par with Western systems for a quarter of the price. Instead than depending only on processing power, that maximizes computational efficiency.
“When DeepSeek launched, many misjudged that computing power demand might stagnate or decrease. In reality, more advanced AI models drive deeper integration into daily life, exponentially increasing inference-level compute need,” said Nori Chiou, investment director at Singapore-based White Oak Capital Partners.
Nvidia shares lost up to a fifth of their value during a DeepSeek-induced global meltdown in AI companies that started on January 24. However, they have subsequently recovered the majority of that loss and are down just 3% so far this year.
Nvidia’s H20 chip is still the industry standard in China, despite the fact that broader use of DeepSeek AI models is anticipated to assist Chinese chipmakers like Huawei (HWT.UL) more effectively compete in the home market due to the models’ emphasis on inference.
According to analysts, Nvidia will ship over 1 million H20 systems in 2024, bringing in about $12 billion for the business.
The H20, which was introduced following the implementation of the most recent set of U.S. export limitations in October 2023, is the main chip that Nvidia is legally allowed to sell in China. Since 2022, Washington has prohibited the transfer of Nvidia’s most sophisticated processors to China due to concerns that China may utilize these cutting-edge technologies to strengthen its military capabilities.
Several Chinese businesses have declared their intention to employ DeepSeek’s models. These include the manufacturer Great Wall (601633.SS), which has opened a new tab that incorporates DeepSeek’s model into its connected vehicle system, and Tencent, which has stated that it would beta test integrating the models into its wildly popular WeChat messaging program.
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