TLDR
- Chinese companies are rapidly increasing orders for Nvidia’s H20 AI chips due to growing demand for DeepSeek’s cost-effective AI models
- Tech giants Tencent, Alibaba, and ByteDance have significantly increased H20 orders since DeepSeek gained global recognition last month
- Smaller companies in healthcare and education are now also purchasing AI servers with DeepSeek models and Nvidia H20 chips
- Analysts estimate Nvidia shipped approximately 1 million H20 units in 2024, generating over $12 billion in revenue
- Despite concerns that DeepSeek might reduce AI chip demand, the opposite is occurring as its efficient models drive more widespread AI adoption
The surge in orders for Nvidia’s H20 artificial intelligence chip from Chinese companies shows how DeepSeek’s rise is actually boosting hardware demand rather than reducing it.
Chinese tech companies are placing larger orders for Nvidia’s H20 artificial intelligence chips as demand for DeepSeek’s low-cost AI models continues to grow. This trend, first reported by Reuters, contradicts earlier market fears that DeepSeek’s efficient approach might reduce the need for advanced computing hardware.
Tencent, Alibaba, and ByteDance have “significantly increased” their orders for H20 chips since January when the Chinese AI startup DeepSeek gained worldwide attention. These major tech companies are acquiring the chips both for their internal AI development needs and to power their cloud computing services, which allow other businesses to access AI tools.
The H20 chip was specifically designed for the Chinese market to comply with U.S. export controls that restrict access to Nvidia’s most advanced chips. These restrictions have been in place since 2022, when Washington banned exports of Nvidia’s top-tier chips to China due to concerns about potential military applications.
The impact of DeepSeek has spread beyond just major tech companies. Smaller businesses in healthcare and education sectors are now buying AI servers equipped with DeepSeek models and Nvidia H20 chips. This marks a change from previous patterns where only well-funded financial and telecommunications firms would invest in servers with AI computing systems.
DeepSeek’s large language models have gained attention for performing at levels similar to Western systems but at much lower costs. This is made possible by their focus on “inference” – the process of producing conclusions from data – which optimizes computational efficiency rather than relying only on raw processing power.
When DeepSeek first launched, many investors worried that its efficient approach might reduce demand for computing power. This concern led to a temporary drop in AI-related stocks, with Nvidia shares losing as much as 20% of their value at one point in January. However, most of those losses have since been recovered, with Nvidia stock now down just 3% for the year.
“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,” explained Nori Chiou, investment director at Singapore-based White Oak Capital Partners.
Market analysts estimate that Nvidia shipped about 1 million H20 units in 2024, which generated over $12 billion in revenue for the company. This underscores the chip’s importance in Nvidia’s overall business strategy and highlights the company’s continued dominance in the AI chip market despite growing competition.
Trump considering new restrictions on the sale of H20 chips to China
The U.S. government under President Donald Trump is reportedly considering new restrictions on the sale of H20 chips to China. While this threat could be contributing to the recent jump in orders, the sources interviewed by Reuters pointed to DeepSeek’s popularity as the main driver behind increased demand.
When asked about the rising demand for H20 chips in China, Nvidia did not provide specific numbers but stated that its products win “on merit in a competitive field.” The company is scheduled to release its quarterly earnings report this week, which may provide more details about its performance in the Chinese market.
Many Chinese companies have already announced plans to incorporate DeepSeek’s models into their products and services. Tencent has revealed that it will test integrating the models into its popular WeChat messaging app, which has over a billion users. Automaker Great Wall has also integrated DeepSeek’s model into its connected vehicle system.
The growing use of DeepSeek models is expected to help Chinese chipmakers such as Huawei compete better in the domestic market. However, Nvidia’s H20 chip remains the industry standard in China for now, highlighting the American company’s strong position despite export restrictions.
For the upcoming quarterly earnings report, financial analysts predict Nvidia will report earnings per share of $0.85 on revenues of $38.08 billion. The company’s stock has gained 64.8% over the past year despite recent volatility, and most Wall Street analysts maintain a “Strong Buy” rating on Nvidia shares.
The trend of increasing H20 chip orders from China comes at a time when the AI industry is rapidly evolving. DeepSeek’s approach to creating more efficient AI models has not reduced the demand for hardware as some feared, but instead appears to be expanding the market by making AI more accessible to a wider range of companies.
As more businesses adopt AI technology for everyday applications, the need for inference-level computing power continues to grow. This suggests that companies like Nvidia that provide the underlying hardware for AI systems may continue to benefit from the expansion of AI use cases, even as the models themselves become more efficient.
Numerous Chinese tech firms have already placed orders for AI servers with H20 chips to run DeepSeek’s models. These include not only large companies but also mid-sized businesses that previously couldn’t afford to invest in AI infrastructure, showing how the technology is becoming more mainstream in China’s business landscape.
The news about increasing H20 chip orders from China comes just one day before Nvidia is set to release its quarterly earnings report on Wednesday. Investors will be watching closely for any comments from the company about its performance in the Chinese market and how trends like the rise of DeepSeek are affecting its business strategy.
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