Tencent is accelerating its AI application development by investing in NVIDIA's H20 chips, highlighting its strategic focus on AI scalability. Recently, Tencent placed a substantial order for these chips, causing a temporary supply shortage. The order, reportedly worth billions, underscores Tencent's commitment to enhancing its AI capabilities.

NVIDIA gained 0.6% in premarket.

Tencent and ByteDance are NVIDIA's largest clients in China, with both companies planning to purchase around 230,000 NVIDIA chips in 2024. Microsoft leads globally with an expected purchase of 485,000 AI chips. The H20 chip, designed for the Chinese market, represents the most advanced option for legal acquisition, albeit with performance limitations due to U.S. export restrictions.

The launch of DeepSeek has increased demand for the H20 chip. Tencent integrated DeepSeek into WeChat and other applications, including QQ Music and Tencent Maps, to improve user experience and prevent service disruptions. The company has made significant investments in computing power to support these integrations.

In May 2024, Tencent launched its AI model app, Tencent Yuanbao, amidst a competitive market with apps like ByteDance's Doubao and Kimi vying for dominance. Despite not heavily investing in Yuanbao initially, Tencent's strategic ad spending resulted in a surge in downloads, briefly surpassing competitors before falling back.

Tencent has been proactive in its AI development efforts, implementing several initiatives such as DeepSeek-R1 integration and new model deployments. The company is positioning itself as a leader in AI scalability, focusing on enhancing existing applications rather than creating new ones.

As the AI model competition intensifies, Tencent's strategy of leveraging existing applications could prove advantageous. However, the industry is still in its early stages, with significant growth potential as companies continue to innovate and compete.