Huawei-DeepSeek Alliance May Become Threat to Nvidia, Expert Warns

While Nvidia continues to dominate the artificial intelligence chip market, a potential alliance between Chinese tech giant Huawei and AI firm DeepSeek is posing a credible long-term challenge to its dominance, according to Gregory Allen, Director of the Wadhwani AI Center at CSIS. This potential competition could significantly alter the landscape of the AI industry, especially as China pushes for technological self-sufficiency.

In a recent interview with Bloomberg, Allen highlighted the strategic importance of this alliance, stating that Nvidia should be most concerned about Huawei's ambition to leverage DeepSeek's AI expertise. The collaboration aims to create an alternative, cost-effective chip ecosystem that could compete with Nvidia's CUDA software moat.

"If you're Nvidia, the real threat is Huawei, because Huawei has advanced AI chip design that they're trying to get the Chinese government to force everybody to buy," says Allen. This potential state-backed push for Huawei chips could significantly disrupt Nvidia's market share in China, a key market for AI chip sales.

DeepSeek Gains Momentum

The rise of DeepSeek has caught the attention of the AI community. The company's AI models have demonstrated impressive performance at a low cost, leading some to call it a "Sputnik moment" in the US-China technology race. DeepSeek has also become a popular AI app, with rapid downloads in the US.

Many Chinese tech firms, from Lenovo to Inspur, have started incorporating DeepSeek's AI models into their new "all-in-one" servers to enhance and ramp up democratisation of the technology.

While DeepSeek initially relied on Nvidia's H800 GPUs for training its R1 model, Huawei is now providing DeepSeek-optimized inference support for its Ascend AI GPUs, reducing the need for reliance on Western companies.

Huawei's Chip Production Improvements

Huawei has been making strides in improving its AI chip production, with its latest Ascend 910C processors showing better performance than previous products. Huawei's Ascend chips have seen a production yield improvement of nearly 40 percent, which is double what it was a year ago. It hopes to reach 60 percent, which is in line with industry standards. The increased yield has allowed Huawei's AI chip production to become profitable for the first time.

According to a Financial Times report, Huawei intends to produce 100,000 910C processors and 300,000 910B chips this year. This compares with 200,000 910B and no mass production of 910C in 2024, marking an importance advance towards China's goal of full AI independence for advanced chip production.

Huawei's founder, Ren Zhengfei, said the country's anxiety about a “lack of core and soul” had eased, adding “I firmly believe a greater China will rise faster.”

Nvidia Faces Challenges

Nvidia's path forward in China is becoming more complex, due to US export controls. The company is restricted from selling its most advanced chips to China and forced to compete with less powerful hardware, giving its competitors a chance to catch up. It is selling Chinese customers its H20 chips, a less powerful version of its H100 chips designed to adhere to Washington export controls.

Allen emphasizes that the key to Nvidia's current dominance lies in its CUDA software ecosystem, which provides a robust and developer-friendly environment for AI development. Huawei's strategy is to attack this software moat and build its ecosystem, which they would love to use DeepSeek to jumpstart.

Allen emphasizes that the key to Nvidia's current dominance lies in its CUDA software ecosystem, which provides a robust and developer-friendly environment for AI development. Huawei's strategic challenge, then, is to not only produce competitive hardware but also to cultivate a compelling alternative software ecosystem.

"Can they get DeepSeek to start developing attractive AI software on the Huawei ecosystem," Allen asks, "To start building some critical scale economies, network effects in this alternative ecosystem?"

Ultimately, Allen views the AI industry as still being in its early stages. Though the Huawei/DeepSeek alliance might seem insignificant now, he cautions that it "could grow into something pretty significant" in the long term, suggesting that Nvidia's dominance is far from assured.