The deployment of DeepSeek boosts NVIDIA Corporation's (NVDA.US) orders for the H20 chip in China.

Six sources familiar with the matter said that due to the surge in demand for the DeepSeek low-cost artificial intelligence model, Chinese companies are increasing orders for NVIDIA Corporation's H20 artificial intelligence chips, highlighting NVIDIA Corporation's dominant position in the market and potentially alleviating concerns about a decline in demand for artificial intelligence chips due to DeepSeek. Two of the sources said that since the Chinese artificial intelligence DeepSeek entered the global public eye last month, orders from Tencent (00700), Alibaba Group Holding Limited Sponsored ADR (BABA.US), and ByteDance have "significantly increased." Due to U.S. export controls, the H20 is a chip specifically for China. In addition to internal demand for advanced artificial intelligence chips, these three tech giants also provide cloud computing services, allowing other companies to access and use artificial intelligence tools through cloud computing. An insider from one of China's largest server manufacturers said that small companies in industries such as healthcare and education are also purchasing artificial intelligence servers equipped with DeepSeek models and NVIDIA Corporation H20 chips. Previously, only financially strong financial and telecommunications companies would purchase servers with artificial intelligence computing systems. It is reported that the Trump administration is considering restrictions on the sale of H20 chips to China. Although the threat of further controls may be a factor in the surge in orders, sources said that the reason is DeepSeek. Sources did not provide details on the scale of orders. NVIDIA Corporation did not respond to inquiries about the extent of China's demand for H20, but stated that its products "win by strength" in a competitive market. The company is set to report quarterly earnings on Wednesday. DeepSeek's large language models focus on "reasoning" or drawing conclusions, costing only a fraction of Western systems in terms of performance. This can optimize computational efficiency rather than solely relying on raw processing power. Nori Chiou, investment director at Singapore's White Oak Capital Partners, said, "When DeepSeek was launched, many people mistakenly believed that the demand for computing power might stagnate or decline. In reality, more advanced artificial intelligence models have driven a deeper integration with everyday life, exponentially increasing the demand for reasoning-level computing." Starting from January 24th, the global artificial intelligence stocks plunged due to DeepSeek, with NVIDIA Corporation's stock price falling by one-fifth at one point, but later recovering most of its losses, only down 3% year-to-date. Although the broader deployment of the DeepSeek artificial intelligence model is expected to help Chinese chip manufacturers like Huawei better compete in the domestic market, NVIDIA Corporation's H20 chip remains the industry standard in China. Analysts estimate that NVIDIA Corporation's H20 shipments will reach approximately 1 million in 2024, generating over $12 billion in revenue for the company. H20 is NVIDIA Corporation's first chip legally available for sale in China, launched after the latest round of export restrictions in the U.S. took effect in October 2023. Since 2022, the U.S. government has prohibited NVIDIA Corporation from exporting the most advanced chips to China. Many Chinese companies have announced plans to use the DeepSeek model. These include Tencent, which stated that it will beta test these models and integrate them into the WeChat application. Automaker Great Wall has integrated DeepSeek's models into its connected car systems.