DeepSeek's Shift to Domestic Chips May Spell Trouble for Nvidia

Chinese AI startup DeepSeek plans to use domestically produced chips, not Nvidia's, for its latest models, potentially threatening Nvidia's dominance in the AI chip market. DeepSeek's R1 reasoning model shook up the tech world in January, sparking a selloff in Nvidia and other AI-related stocks. The company's new models will be tailored for domestically produced chips, which could be a headwind for Nvidia.

Artificial intelligence (AI) semiconductor market dynamics are shifting as Chinese AI startup DeepSeek plans to use domestically produced chips for its latest models, potentially threatening Nvidia's dominance in the AI chip market. DeepSeek's R1 reasoning model, which briefly shook up the tech world in January, has sparked a selloff in Nvidia and other AI-related stocks. The company's new models will be tailored for domestically produced chips, which could pose a significant headwind for Nvidia.

DeepSeek, dubbed China's "dark horse," recently hinted that its latest models will be designed for upcoming domestically produced Chinese chips. The company's precision format for the latest V3.1 model, UE8M0 FP8, is tailored for next-generation homegrown semiconductors. This move aligns with China's push for self-sufficiency in chip manufacturing and could challenge Nvidia's market share.

Nvidia, the leading AI hardware provider, has faced geopolitical tensions and export controls from the U.S. on advanced chips like the H100 and H20. These restrictions have cost Nvidia approximately $10.5 billion in revenue in early 2026 [1]. To mitigate this, Nvidia has developed China-compliant variants such as the A800 and H800, and more recently, the B30A, a Blackwell-based chip designed to outperform the H20 while adhering to export rules [4].

However, the shift towards domestic chips by Chinese AI startups like DeepSeek could further erode Nvidia's market share in China. Nvidia's resilience lies in its ecosystem dominance, supported by 3.5 million developers and strategic partnerships with AI giants like Microsoft, OpenAI, and Google [5]. Despite these advantages, Nvidia's reliance on TSMC and U.S. export policies introduces instability.

DeepSeek's move to use domestic chips could enable Chinese AI developers to close the gap with the U.S. sooner than expected, challenging Nvidia's dominance both at home and abroad [2]. While there is no guarantee that Chinese-made chips will match Nvidia's performance, the potential impact on Nvidia's market share cannot be ignored [2].

As Nvidia navigates these geopolitical and technological crosswinds, investors should closely monitor the company's ability to adapt and diversify its supply chain. Nvidia's strategic position in China is a microcosm of broader global tensions, and its future depends on geopolitical outcomes and the pace of China's self-reliance drive [1].

References:
[1] NVIDIA (NVDA) Financial Analysis: Growth Amid Geopolitical Headwinds [https://monexa.ai/blog/nvidia-nvda-financial-analysis-growth-amid-geopoli-NVDA-2025-06-12]
[2] NVIDIA 2025: Dominating the AI Boom – Company Overview, Key Segments, Competition, and Future Outlook [https://ts2.tech/en/nvidia-2025-dominating-the-ai-boom-company-overview-key-segments-competition-and-future-outlook/]
[4] Understanding U.S. Allies' Current Legal Authority to Implement AI and Semiconductor Export Controls [https://www.csis.org/analysis/understanding-us-allies-current-legal-authority-implement-ai-and-semiconductor-export]
[5] AI Chips in 2020-2030: How Nvidia, AMD, and Google Are ... [https://patentpc.com/blog/ai-chips-in-2020-2030-how-nvidia-amd-and-google-are-dominating-key-stats]