Chinese companies are significantly increasing orders for Nvidia’s H20 artificial intelligence chip due to the rising demand for DeepSeek’s cost-effective AI models, according to six sources familiar with the matter. This surge in orders, first reported by Reuters, highlights Nvidia’s market dominance and may alleviate concerns that DeepSeek could lead to a decline in AI chip demand. Major Chinese tech firms such as Tencent, Alibaba, and ByteDance have notably increased their orders for the H20 chip, which is specifically designed for the Chinese market due to U.S. export controls. These companies not only use the chips for their own advanced AI needs but also offer cloud computing services that allow other firms to access and utilize AI tools.

Smaller companies in sectors like healthcare and education are also purchasing AI servers equipped with DeepSeek models and the H20 chip, broadening the adoption of these technologies beyond the traditional financial and telecoms sectors. The U.S. administration is considering imposing further restrictions on the sale of the H20 chip to China, but the sources attribute the recent jump in orders primarily to the popularity of DeepSeek’s models.

DeepSeek’s large language models, which focus on “inference” to optimize computational efficiency, have been praised for their performance at a fraction of the cost of Western systems. This has led to a deeper integration of AI into daily life, increasing the need for inference-level compute. Despite the potential for Chinese chipmakers like Huawei to compete more effectively in the domestic market, the H20 chip remains the industry standard in China. Analysts estimate that Nvidia shipped around 1 million H20 units in 2024, generating over $12 billion in revenue.

The H20 chip, launched after the latest round of U.S. export restrictions in October 2023, is the primary chip legally permitted for sale in China. The U.S. has banned exports of Nvidia’s most advanced chips to China since 2022, citing concerns about the potential military use of advanced technologies. Numerous Chinese companies have announced plans to use DeepSeek’s models, including Tencent, which is beta testing the integration of these models into its WeChat messaging app, and automaker Great Wall, which has integrated DeepSeek’s model into its connected vehicle system.