Alibaba and Tencent report an increase in demand for GPUs, while CPUs remain stagnant. AI budgets are significantly more modest than in the US.

Two major Chinese cloud providers, Alibaba and Tencent, recently announced their quarterly results. Both companies report a similar trend: their customers are no longer looking for CPU processing power, but need GPUs. AI-based cloud services are replacing the demand for “traditional” cloud offerings that use the CPU, they say.

Limited budgets

Tencent itself puts some nuance on this trend. Although an increase in demand for GPUs is visible, it remains rather modest compared to the US. This is because the budget of an average Chinese customer is much smaller than that of an average American company. A Chinese start-up can spend at most one to two billion dollars, but an American start-up can easily have a budget of tens of billions of dollars.

GPUs now primarily fill a need that would otherwise be met by CPUs, the cloud company further notes. So it’s more about a change than about GPUs creating new demand in the market.

Lenovo is also benefiting from the AI ​​hype. The data center infrastructure sector posted record sales in the past quarter. That is not enough to make the division profitable.

Catch up

China is catching up quickly in the AI ​​industry. Due to American trade restrictions, chip technology has limited access to Chinese tech companies, although Tencent and Alibaba have not heard of any difficulties. While Alibaba admits that “supply still does not match demand,” that is also the case with Nvidia.

The Chinese chip industry is gradually starting to stand on its own two feet. Huawei is working on a chip that could compete with the Nvidia H100, but production is not running smoothly. In the short term, the trade restrictions will be felt, but in the long term, a mature chip industry can be built that is no longer so far behind the western chips from Intel, AMD and Nvidia.