Exclusive-China's DeepSeek developing its own AI chip, sources say
DeepSeek's Strategic Move into AI Chip Development
July 7 (Reuters) - Chinese startup DeepSeek is developing its own AI chip, according to three people familiar with the matter, a push that could reduce its reliance on Nvidia and Huawei chips, which it has depended on to train and run its globally popular models.
The chip is designed for inference — the stage of AI computing in which a trained model generates responses for users — rather than for training new models, the sources said.
Potential Impact on the AI Industry
If successful, DeepSeek's expansion into semiconductor development would mark a major strategic shift for a company widely hailed in China as the country's AI champion, potentially adding to challenges faced by Chinese tech giant Huawei.
Shares of U.S.-based Nvidia slipped about 2% in premarket trading.
DeepSeek's Rise and Focus
DeepSeek rose to global fame more than a year ago after releasing two highly efficient AI models that went viral worldwide, surprising many in Silicon Valley and Washington.
The company has long been known for emphasizing AI model breakthroughs rather than commercializing its technology.
Market Dynamics and Competition
Although Huawei's offerings still lag Nvidia's most advanced chips by a wide margin, a U.S. ban on their exports to China has helped Huawei gain around half of the $50 billion domestic AI chip market, supplying DeepSeek and several other leading industry players.
However, Huawei's hold on the market is already weakening as tech rivals Alibaba and Baidu develop their own AI chips and gain market share.
DeepSeek's Early-Stage Efforts
DeepSeek's effort to join that race remains at an early stage, with the company reaching out to external partners and holding discussions with chip-design, foundry and memory companies, the three sources said. The effort began about a year ago, one of the people said.
The Hangzhou-based company has also increased hiring of chip-design engineers in recent months, but recruitment has been done privately without job postings on public hiring platforms, two of the sources said.
All three people declined to be identified because the information is not public. Despite becoming a standard-bearer of China's AI ambitions, DeepSeek has kept a low profile. The company did not respond to a request for comment.
Global Trends in AI Chip Development
Following Global Leaders
FOLLOWING GLOBAL TRENDS
With an in-house chip, DeepSeek would be joining other global AI developers in seeking greater control over the hardware behind their models and reduced dependence on Nvidia's.
OpenAI last month unveiled Jalapeno, its first custom inference chip, developed with Broadcom, while Anthropic has been weighing building its own AI chips, Reuters reported in April.
Geopolitical and Strategic Considerations
For DeepSeek, the effort carries an added strategic dimension. U.S. export controls bar Chinese companies from buying Nvidia's most advanced chips, and Beijing has been pressing its technology champions to build domestic alternatives.
DeepSeek founder Liang Wenfeng said in a rare 2024 interview with a Chinese media outlet that chip export controls were a challenge for the company.
DeepSeek's Use of Nvidia and Huawei Chips
DeepSeek has used both Nvidia and Huawei chips. The company has said the foundation model underpinning R1, the reasoning model whose low-cost performance triggered a rout in U.S. tech stocks in January 2025, was trained on Nvidia's H800, a chip designed for the Chinese market that Washington banned in late 2023.
The company has since leaned increasingly on Huawei. In April it released its V4 model adapted for Huawei's Ascend chips, and Huawei said its processors were used in part of the training of V4-Flash, a lighter version of the model. Orders for Huawei's Ascend 950 chips from Chinese tech conglomerates surged after the launch, Reuters has reported.
Inference Chips and Market Demand
Targeting Inference Demand
TAPPING INFERENCE DEMAND
A DeepSeek inference chip would target the fastest-growing segment of AI computing demand. As AI applications spread, more of the industry's computing work is shifting from training models to running them, which relies on specialised chips that can be cheaper and less power-hungry than general-purpose GPUs.
Challenges and Risks
However, there is no guarantee of success. Designing a competitive AI chip typically takes years and significant capital. Manufacturing poses another hurdle as the U.S. bans Chinese designers from accessing the most advanced overseas foundries, while separate U.S. curbs have cut China's access to high-bandwidth memory, a component critical to AI inference chips.
Funding and Future Prospects
DeepSeek's chip push coincides with the company's first embrace of outside capital. The company was slated to raise $7 billion in a maiden funding round valuing it at between $52 billion and $59 billion, Reuters reported in June, reversing its yearslong strategy of rejecting external investment.
(Reporting by Reuters staff; Editing by Eduardo Baptista and Tomasz Janowski)