Nvidia's H20 Chip Orders Surge as Chinese Firms Embrace DeepSeek AI Models

Chinese companies are significantly increasing their orders of Nvidia's H20 artificial intelligence chip, driven by the growing adoption of DeepSeek's cost-effective AI models, Reuters reports. This surge in demand, first reported by Reuters, underscores Nvidia's dominance in the Chinese AI market and could alleviate concerns that DeepSeek might dampen demand for AI chips.

Tech giants Tencent, Alibaba, and ByteDance have "significantly increased" their H20 orders since DeepSeek gained global attention last month, according to two sources familiar with the matter. The H20 chip is specifically designed for the Chinese market due to US export controls.

Beyond their internal needs, these tech giants also provide cloud computing services, enabling other companies to access and utilize AI tools, including DeepSeek models. This is prompting smaller companies in sectors like healthcare and education to purchase AI servers equipped with DeepSeek models and Nvidia H20 chips, a source at one of China's largest server makers told Reuters. Previously, only financially robust companies in sectors like finance and telecommunications had the resources to invest in servers with AI computing systems.

While the US administration is considering further restrictions on the sale of the H20 chip to China, the sources cited DeepSeek's emergence as the primary driver of increased demand.

Nvidia, which is set to report its quarterly earnings on Wednesday, has not publicly disclosed the extent of H20 demand from China but emphasized its products' competitiveness. Tencent, ByteDance, and Alibaba have not yet commented on the matter.

DeepSeek's large language models rival Western systems in performance while being significantly more cost-effective, focusing on "inference," or producing conclusions, rather than solely relying on raw processing power.

"When DeepSeek launched, many misjudged that computing power demand might stagnate or decrease," said Nori Chiou, investment director at Singapore-based White Oak Capital Partners, to Reuters. "In reality, more advanced AI models drive deeper integration into daily life, exponentially increasing inference-level compute need."

DeepSeek's emergence initially triggered a global sell-off in AI stocks, including a sharp drop in Nvidia's share price. However, Nvidia has since recovered most of its losses.

While the wider adoption of DeepSeek AI models is expected to boost Chinese chipmakers like Huawei, the Nvidia H20 chip remains the industry standard in China. Analysts estimate that Nvidia shipped approximately 1 million H20 units in 2023, generating over $12 billion in revenue.

The H20 is the primary chip Nvidia is currently permitted to sell in China, having been launched after the latest round of US export restrictions took effect in October 2023. The US has banned exports of Nvidia's most advanced chips to China since 2022, citing concerns that advanced technologies could be used by China to enhance its military capabilities.

Numerous Chinese companies have announced plans to integrate DeepSeek models into their services. Tencent, for example, plans to beta test the integration of DeepSeek models into its popular WeChat messaging app, while automaker Great Wall has integrated DeepSeek's model into its connected vehicle system.