TikTok's parent company ByteDance is speeding up the development of its own artificial intelligence chips in an effort to boost its competitive edge in China's artificial intelligence chatbot market, according to people familiar with the matter.

Two people familiar with the matter confirmed that ByteDance plans to work with chipmaking giant TSMC to achieve mass production of two self-developed semiconductor chips by 2026. The move could reduce ByteDance's reliance on expensive Nvidia chips to develop and run its AI models.

For ByteDance, reducing chip costs is crucial. Like other big Chinese tech companies and many start-ups, ByteDance has launched its own large language model for internal use and external sales. However, the market is extremely competitive, leading Chinese tech giants, including Alibaba and Baidu, to slash the price of their models by as much as 97%.

Bytedance last year released its first AI chatbot, "Doubao," which offers text and image generation similar to OpenAI ChatGPT. This year, ByteDance launched another batch of low-cost large language models, some of which are priced as much as 99% lower than their OpenAI counterparts.

At the same time, ByteDance's expenses in developing generative AI models are rising. This year, the company has ordered more than 200,000 Nvidia H20 chips, the most advanced Nvidia chip allowed to be sold to China under U.S. export controls, according to people familiar with the matter. The total value of the order is more than $2 billion, and ByteDance is still waiting for Nvidia to deliver the full order.

However, ByteDance is planning to order hundreds of thousands of its own designed training and reasoning chips from TSMC. These in-house designed chips are expected to cost billions of dollars less than buying chips from Nvidia. However, these chips are still in the design phase, so ByteDance's plans may be adjusted.

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