ByteDance, the parent company of TikTok, is working with TSMC to manufacture two self-developed AI chips by 2026, according to reports from The Information and Economic Daily News. The move is intended to reduce ByteDance’s reliance on Nvidia, the leading player in the AI chip market.

Currently, most companies use Nvidia’s GPUs for AI development, but U.S. export restrictions have made it difficult for Chinese firms to access these chips, prompting ByteDance to seek alternative solutions. By developing its own AI chips, ByteDance hopes to improve performance, processing speed, and flexibility for its AI-powered services, including TikTok’s recommendation systems.

The AI chips are expected to be produced using TSMC’s 5nm process, one generation behind the foundry's most advanced nodes, allowing compliance with U.S. export regulations to China. The chips are reportedly similar to Nvidia’s next-generation flagship AI chip, Blackwell, which is built on TSMC's 4NP node.

Sources familiar with the matter suggest that ByteDance’s self-designed chips could save the company billions of dollars compared to purchasing Nvidia’s products. Despite the chips still being in the design phase and plans subject to change, ByteDance’s move is seen as a strategic shift to reduce its dependency on external suppliers.

ByteDance’s investment in AI has been growing significantly. It is reported that the company has ordered over 200,000 Nvidia H20 chips this year, costing over USD 2 billion, with some orders yet to be delivered. These H20 chips, launched by Nvidia in response to U.S. export bans, have 41% fewer cores and 28% lower performance than the H100 model but are seeing strong demand among Chinese cloud service providers, including Huawei and Tencent.

In August 2022, ByteDance expanded its AI portfolio by launching Doubao, an AI chatbot that quickly became a popular alternative to Baidu's Ernie Bot. ByteDance has also rolled out Doubao-branded large language models (LLMs) for enterprise clients, offering cost-effective solutions in the competitive AI market.

In light of U.S.-China tech tensions, ByteDance’s collaboration with TSMC reflects the company’s ambition to strengthen its AI capabilities while navigating complex export regulations. Baidu has also developed its own AI chip, Kunlun 3, which TSMC is set to manufacture in the near future.

According to TSMC's second-quarter financial report, North American clients contributed 65% of its total revenue, while China, the second-largest market, accounted for 16%, a significant rise from 9% in the first quarter.