Deepseek Drives Nvidia H20 Chip Demand in China

Chinese technology companies increase their orders for Nvidia’s H20-KI chips. The boom is driven by the increasing demand for inexpensive AI models of the startup Deepseek.

Chip demand exploded in China

The market for artificial intelligence in China is currently experiencing a real boom. In particular, the demand for Nvidia’s H20-KI chips has increased drastically in the past few weeks. The trigger for this increase is the growing popularity of the inexpensive AI models of the Chinese startup Deepseek. Large tech companies such as Tencent, Alibaba and bytedance have significantly increased their orders for the H20 chip. These companies use the powerful chips not only for their own cloud computing services, but also to give customers access to AI tools. The H20 has been specially developed for the Chinese market to meet the strict US export controls.

Reuters reports, the demand boom is not only limited to the large technology groups. Even smaller companies from the health and education sector are increasingly investing in AI server, which are equipped with Deepseek models and Nvidia’s H20 chips. This marks a remarkable shift, since so far mainly custody companies from the financial and telecommunications industry have used such efficient systems.

Deepseek as the driver of development

The success of Deepseek is based on the focus on “Inference” – the ability to draw conclusions from existing data. This approach optimizes the arithmetic efficiency instead of relying exclusively on raw computing power.

The models from Deepseek can keep up with western systems in terms of performance, but are significantly more cost -effective. According to the company, the Deepseek V3 model was trained for only about $ 6 million (around 5.7 million euros)-compared to an estimated $ 100 million for Openais GPT-4 and with just one tenth of the computing power, the model comparable to metas Llama 3.1 was needed.

When Deepseek came onto the market, many wrongly believed that the demand for computing power could stagnate or decrease. In reality, more advanced AI models drive deeper integration into everyday life and increase the need for computing power for inference tasks exponentially. Nori Chiou, investment director at White Oak Capital Partners in Singapore

Nvidia remains the market leader

Despite the rise of Deepseek and the expected strengthening of Chinese chip manufacturers such as Huawei, Nvidia’s H20 chip remains the industrial standard in China. It is noteworthy that Deepseek only needed about 2000 NVIDIA H800 GPUs for its latest model, while leading western AI companies train their chatbots with supercomputers that use up to 16,000 GPUs or more.

Analysts estimate that Nvidia delivered about one million H20 units in 2024 and thus generated sales of over twelve billion dollars. The H20 is currently the only high-performance AI chip that Nvidia can legally sell in China. It was developed in response to the tightened US export restrictions that came into force in October 2023. The US government has prohibited the export of Nvidia’s most advanced chips to China since 2022 because there are concerns that these technologies could be abused for military purposes. Ironically, these restrictions have forced Chinese companies like Deepseek to develop more resource-efficient AI models.