Chinese tech giants, including Tencent (0700.HK), Alibaba (BABA), and ByteDance, are significantly increasing orders for Nvidia’s (NVDA) H20 AI chips, driven by booming demand for DeepSeek’s low-cost AI models, sources familiar with the matter revealed.

Nvidia’s Market Dominance Strengthens

The surge in orders highlights Nvidia’s continued dominance in the AI chip market, alleviating concerns that DeepSeek’s emergence could reduce overall AI hardware demand. The H20 chip, designed specifically for the Chinese market due to U.S. export controls, has become a critical component for AI applications across various industries.

Why Demand for H20 Chips Is Rising

In addition to meeting their internal AI processing needs, Tencent, Alibaba, and ByteDance provide cloud computing services, allowing businesses to access cutting-edge AI tools. This has driven demand not only from major corporations but also from smaller players in healthcare, education, and other sectors.

A source at one of China’s largest server manufacturers noted that while AI servers were previously limited to deep-pocketed finance and telecom firms, the growing adoption of DeepSeek’s models has expanded accessibility across industries.

U.S. Export Controls and Market Impact

Amid rising demand, the U.S. government is reportedly considering further restrictions on the sale of Nvidia’s H20 chip to China. However, sources emphasize that DeepSeek’s rapid adoption—not regulatory concerns—is the primary driver of increased orders.

While Nvidia has not disclosed specific sales figures, analysts estimate the company shipped approximately 1 million H20 units in 2024, generating over $12 billion in revenue. Despite U.S. export restrictions on Nvidia’s most advanced chips since 2022, the H20 remains China’s industry standard AI chip.

DeepSeek’s AI Models: Disrupting the Market

DeepSeek’s large language models (LLMs) offer performance on par with Western AI systems but at a fraction of the cost. Unlike traditional models that rely heavily on raw computational power, DeepSeek prioritizes “inference” efficiency, optimizing AI processing for real-world applications.

The launch of DeepSeek initially triggered fears of declining AI chip demand, causing Nvidia’s stock to drop nearly 20% in late January. However, as businesses integrate DeepSeek’s AI models into everyday applications, the need for powerful inference-level chips has skyrocketed.

Key Industry Developments

• Tencent plans to integrate DeepSeek’s models into WeChat, China’s most popular messaging platform.
• Great Wall Motors is incorporating DeepSeek’s AI into its connected vehicle systems.
• Chinese chipmakers, including Huawei, stand to benefit from DeepSeek’s efficiency-driven AI models, but Nvidia’s H20 remains the dominant choice.

Conclusion: AI Chip Demand Continues to Surge

Despite initial concerns, DeepSeek’s rise has reinforced demand for AI chips rather than reducing it. With major Chinese companies accelerating H20 orders, Nvidia’s foothold in the AI hardware market remains strong. As AI adoption deepens across industries, the need for high-performance inference chips is set to grow, keeping Nvidia at the forefront of China’s AI landscape.