Huawei Aims to Challenge Nvidia in China's AI Chip Market

Chinese technology giant Huawei Technologies is setting its sights on expanding its presence in China's market for artificial intelligence (AI) chips. The company is focusing on aiding local businesses in utilizing its silicon for "inference" tasks. This shift to inference comes as the demand for chatbots rises, which tends to prioritize these tasks over the more resource-intensive model training.

In comparison, Nvidia Corp (NASDAQ: NVDA) made $12 billion in sales in China in 2024, significantly outselling Huawei by distributing twice as many AI chips, including its well-known Ascend 910B, according to a report by SemiAnalysis published by the Financial Times.

Leading AI firms in China are heavily dependent on Nvidia’s graphics processing units (GPUs) for the training of large language models, which have become increasingly crucial in the development of AI-driven applications.

Huawei is now promoting its latest Ascend AI processors as the optimal hardware choice for companies in China that focus on inference. The company is working on adapting AI models that were originally trained using Nvidia products, so that they can operate efficiently on Ascend chips. This is particularly critical given that Nvidia GPUs and Ascend chips utilize different software ecosystems.

To facilitate this transition, Huawei is actively assisting businesses in making the two systems compatible. Moreover, this strategic pivot is in line with support from the Chinese government. Authorities have encouraged local firms to purchase more Huawei AI chips, primarily due to the U.S. government’s restrictions that limit China's access to advanced semiconductor technologies.

Despite Huawei's efforts, analysts, including those from Bernstein, have raised concerns regarding the technical challenges associated with Ascend processors. They point out the difficulties in persuading developers to transition away from Nvidia’s widely used Cuda software.

Furthermore, both Huawei and Nvidia are facing intense competition from other players in China, including Baidu Inc (NASDAQ: BIDU), Cambricon, Amazon.com Inc (NASDAQ: AMZN), and Microsoft Corp (NASDAQ: MSFT). The ongoing U.S. semiconductor embargo has also created hurdles, putting additional pressure on Chinese manufacturers reliant on outdated chip production equipment.

In the midst of these challenges, domestic smartphone brands like Huawei and Xiaomi (OTC: XIACF) have managed to improve their market standings as Apple Inc’s (NASDAQ: AAPL) iPhones have lost ground due to a lack of AI features. Formidable competition from Chinese brands has also been enhanced through aggressive pricing strategies and governmental support.

According to William Stein from Truist, Nvidia has benefited from robust spending on AI infrastructure, which has been driven by its innovation and leading position in the market for AI compute chips and software.

Price Action: As of the latest update, NVDA shares have experienced a slight increase of 0.92%, trading at $138.98.

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Huawei, Nvidia, AI