Nvidia Faces Increased Demand For H20 AI Chips As DeepSeek Models Gain Traction

Chinese technology leaders Tencent Holdings, Alibaba Group Holdings Ltd, and ByteDance are ramping up their orders for Nvidia Corporation's H20 AI chips. This surge is largely driven by the emergence of DeepSeek's affordable AI models, leading to a heightened need for AI computing power.

Recent Developments: A notable rise in orders for the H20 chips has been reported, pointing to Nvidia's sustained leadership in the AI chip sector.

The H20 chip has been tailored specifically for the Chinese market, developed in response to U.S. export limitations that hinder Nvidia from offering its most advanced AI products to Chinese enterprises.

Even though there are ongoing concerns regarding potential further trade restrictions from the U.S., insiders indicate that the main catalyst for this demand comes from DeepSeek's AI models. These models are designed to enhance computational efficiency for inference tasks, moving beyond the mere focus on processing speed.

These AI models have quickly garnered attention and adoption in various fields, including cloud computing and the automotive industry.

Tencent is said to be experimenting with DeepSeek's AI technology within its popular messaging app WeChat, while the automobile manufacturer Great Wall has begun using them in its connected vehicle systems. Analysts predict that Nvidia may distribute around 1 million H20 chips throughout 2024, potentially yielding over $12 billion in revenue.

Significance of These Events: Last month, Nvidia acknowledged the impressive performance of China's DeepSeek R1 AI model, constructed at a cost of less than $6 million and believed to have outperformed notable U.S. models, including those developed by OpenAI.

This achievement sparked a broader decline in the tech market, resulting in a 17% drop in Nvidia's stock and more than a 20% decrease in AI infrastructure shares, contributing to a loss of $600 billion in Nvidia's overall market valuation.

Recently, in an interview, Nvidia CEO Jensen Huang addressed investor anxieties, linking the market retreat to misconceptions surrounding expenditures related to AI infrastructure.

Market Performance: During after-hours trading, Nvidia's stock saw a slight increase of 0.51%, bringing it to $130.95.

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Nvidia, AI, Demand