On August 22, China’s domestically focused computing sector surged on public markets.
The Wind GPU Index rose 9.87%, led by Cambricon, whose shares jumped nearly 20% to a record high, pushing its market capitalization past RMB 500 billion (USD 70 billion). Hygon also gained about 20%, reaching a new high with a market value above RMB 400 billion (USD 56 billion). If a merger or acquisition involving Hygon and Sugon proceeds, Hygon’s market cap could exceed RMB 500 billion.
Other GPU-related companies, including Jingjia Microelectronics and VeriSilicon, also saw gains. Combined, the market capitalization of mainland-listed GPU firms topped RMB 1 trillion (USD 140 billion) on August 22.
The rally followed reports that Nvidia had halted production of its H20 chip.
On August 21, US tech outlet The Information, citing unnamed sources, reported that Nvidia had instructed key component suppliers—including South Korea’s Samsung and US-based Amkor—to halt work on the H20. Amkor reportedly handles chip packaging, while Samsung provides high-bandwidth memory. None of the companies have publicly addressed the report.
Investor sentiment also received a boost from Chinese artificial intelligence startup DeepSeek. That same day, the company announced its latest model, V3.1, which supports UE8M0 FP8, a precision format designed for the next generation of China-made chips.
Why Nvidia may have paused H20 production
The H20 is based on Nvidia’s Hopper architecture and was designed to comply with US export controls while still serving the Chinese market. Launched in late 2023, it began limited shipments in 2024. Although it offers only 15–30% of the performance of the high-end H100, the H20 retains high memory bandwidth (approximately four terabytes per second) and includes 96 gigabytes of HBM3 memory.
As the most advanced Nvidia chip legally available in China under current export restrictions, the H20 plays a critical role in the market. Its disruption has raised concerns, especially given that H20 sales contribute significantly to Nvidia’s revenue in China.
That position has grown increasingly tenuous. In April, the US government temporarily blocked H20 sales to China over national security concerns, forcing Nvidia to cancel some orders. Analysts estimated this could cost Nvidia up to USD 13.5 billion in revenue and jeopardize a USD 50 billion market opportunity.
In July, the US restored Nvidia’s H20 export license. CEO Jensen Huang visited China soon after to restore sales momentum. However, the license reportedly came with conditions, including a requirement that 15% of H20-related revenue in China be remitted to the US government.
Later that month, the Cyberspace Administration of China summoned Nvidia for discussions. Citing local laws, regulators demanded proof that the H20 was free from vulnerabilities or backdoors. The issue escalated on August 10, when allegations emerged that the US had previously explored embedding backdoors in chips used for AI development.
The program suggested that companies cooperating with US authorities might receive favorable export terms if their Chinese buyers were considered low risk. It outlined hypothetical features such as license locking, tracking, usage monitoring, and remote restrictions, concluding the H20 was insecure, inefficient, and technologically outdated.
Nvidia denied the allegations, stating:
“Cybersecurity is critically important to us. Nvidia does not have ‘backdoors’ in our chips that would give anyone a remote way to access or control them.”
Nevertheless, concerns persisted. The reported production pause only deepened the controversy.
Market speculation over the production pause
Analysts have proposed several explanations for Nvidia’s reported production halt:
- One is supply chain and product lifecycle management. Nvidia may be preparing to shift production to its Blackwell architecture, possibly including a China-specific B30 chip. Halting H20 output could free capacity, clear inventory, and support a new product launch.
- Another possibility is declining cost-effectiveness under regulatory pressure. Nvidia is reportedly passing compliance-related costs to buyers. On August 18, Deepwater Asset Management’s Gene Munster said H20 prices could rise by about 18%. Combined with mounting security concerns, this could be weakening buyer interest.
- Lastly, rising competition from domestic chipmakers may be shrinking the H20’s addressable market. As Chinese companies improve their AI accelerators and optimize models for local hardware, Nvidia’s market share faces growing pressure.
Domestic chipmakers gain momentum
While Nvidia navigates these challenges, Chinese chipmakers continue to advance.
In June, the Agricultural Development Bank of China signed a GPU server procurement deal worth hundreds of millions of RMB, awarding contracts to Huawei, Cambricon, and Hygon. Also in June, Moore Threads began IPO counseling for an A-share listing, and MetaX filed to go public on the Shanghai Stock Exchange’s STAR Market.
In August, Biren Technology launched a general-purpose GPU in Shanghai that it claimed set a global performance record in its class.
Released on August 21, DeepSeek-V3.1 introduced three key upgrades: dual “thinking” and “non-thinking” modes, faster response in thinking mode, and enhanced agentic capabilities for tool use and task completion. What drew the most investor interest, however, was the model’s adoption of UE8M0 FP8.
According to CITIC Securities analysts, FP8 nearly doubles performance compared to FP16 within the same silicon footprint, while also reducing power and bandwidth consumption. The update therefore positions DeepSeek’s models to run efficiently on domestic chips, which could reinforce confidence in local AI infrastructure.
Buoyed by these developments, investor sentiment has seemingly surged. Since early June, China’s GPU sector has entered a new growth phase, with Cambricon’s stock more than doubling and Hygon gaining nearly 40%.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Ding Mao for 36Kr.