Nvidia Faces High Demand for H20 AI Chips Amidst Competition from DeepSeek

Chinese technology giants Tencent Holdings, Alibaba Group Holdings Ltd, and ByteDance are significantly boosting their orders for Nvidia Corporation's H20 AI chips. This surge in demand is largely driven by the increasing popularity of DeepSeek's cost-effective AI models, which are reshaping the landscape of AI computing.

What Happened: A recent report from Reuters, based on insights from various sources, outlines the growing number of H20 chip orders, emphasizing Nvidia’s strong position in the AI chip sector.

The H20 chip is specifically designed for the Chinese market in response to U.S. export limitations that hinder Nvidia from providing its most advanced AI technologies to Chinese firms.

While there are concerns regarding potential further trade restrictions from the U.S., insiders indicated that the primary catalyst for this demand is the efficiency of DeepSeek's AI models. These models excel at optimizing computations for inference tasks, moving beyond a sole dependence on high processing power.

These Low-cost models have rapidly gained traction across various industries, including cloud computing and automotive sectors.

Tencent is reportedly experimenting with DeepSeek's AI models within its widely used WeChat platform, while the automotive company Great Wall has begun integrating these models into its vehicle connectivity systems. Analysts project that Nvidia could ship around 1 million H20 chips in 2024, potentially generating revenues exceeding $12 billion.

Why It Matters: Recently, Nvidia recognized the capabilities of China's DeepSeek R1 AI model. Developed at a cost of less than $6 million, it is said to outperform leading U.S. models, including those from OpenAI.

This significant milestone has contributed to a downturn in the tech market, resulting in Nvidia's share price dropping by 17% and a more than 20% decline in shares related to AI infrastructure. Consequently, Nvidia saw a staggering $600 billion decrease in its market value.

Earlier this month, Nvidia's CEO Jensen Huang addressed worries from investors, attributing the stock sell-off to misunderstandings regarding spending on AI infrastructure.

Price Action: In after-hours trading, Nvidia experienced a rise of 0.51%, reaching $130.95 at the time of this report.

Image via Shutterstock

Nvidia, AI, Demand