SINGAPORE/BEIJING (Reuters) - Chinese companies are ramping up orders for Nvidia's ( NVDA ) H20 artificial intelligence chip due to booming demand for DeepSeek's low-cost AI models, six people familiar with the matter said.

The surge in orders, which is being reported for the first time by Reuters, underlines Nvidia's ( NVDA ) dominance of the market and could help alleviate concerns that DeepSeek might cause a slide in AI chip demand.

Tencent ( TCTZF ), Alibaba ( BABA ) and ByteDance have "significantly increased" orders of the H20 - a chip specific to China due to U.S. export controls - since the Chinese AI startup burst into the global public consciousness last month, two of the people said.

In addition to their internal needs for advanced AI chips, the three tech giants provide cloud computing services through which other firms can access and use AI tools.

Smaller companies in sectors like healthcare and education are also purchasing AI servers equipped with DeepSeek models and Nvidia H20 chips, said a source at one of China's largest server makers. Previously only deep-pocketed financial and telecoms firms bought servers with AI computing systems, the source added.

U.S. President Donald Trump's administration is looking at imposing restrictions on the sale of the H20 chip to China, Reuters has reported. While the threat of further controls could be a factor in the jump in orders, the sources cited DeepSeek as the reason.

The sources did not provide details on the size of the orders. They were not authorised to speak to media and declined to be identified.

Nvidia ( NVDA ) did not respond to queries on how much demand for the H20 it was seeing from China but said its products won "on merit in a competitive field". The company is set to report quarterly earnings on Wednesday.

Tencent ( TCTZF ), ByteDance and Alibaba ( BABA ) did not respond to requests for comment.

DeepSeek's large language models rival Western systems in performance at a fraction of the cost as they focus on "inference" or producing conclusions. That optimises computational efficiency rather than relying solely on raw processing power.

"When DeepSeek launched, many misjudged that computing power demand might stagnate or decrease. In reality, more advanced AI models drive deeper integration into daily life, exponentially increasing inference-level compute need," said Nori Chiou, investment director at Singapore-based White Oak Capital Partners.

A DeepSeek-induced global rout in AI stocks that began January 24 saw Nvidia ( NVDA ) shares lose as much as a fifth of their value at one point but they have since regained most of that ground and are down just 3% for the year to date.

Though wider deployment of DeepSeek AI models is expected to help Chinese chipmakers such as Huawei better compete in the domestic market thanks to the models' focus on inference, Nvidia's ( NVDA ) H20 chip remains the industry standard in China.

Analysts estimate Nvidia ( NVDA ) shipped approximately 1 million H20 units in 2024, generating over $12 billion in revenue for the company.

The H20 is the primary chip Nvidia ( NVDA ) is legally permitted to sell in China and was launched after the latest round of U.S. export restrictions took effect in October 2023. Washington has banned exports of Nvidia's ( NVDA ) most advanced chips to China since 2022, concerned that advanced technologies could be used by China to build up its military capabilities.

Numerous Chinese companies have announced plans to use DeepSeek's models. Among them are Tencent ( TCTZF ), which has said it will beta test integrating the models into its highly popular WeChat messaging app, and automaker Great Wall which has integrated DeepSeek's model into its connected vehicle system.