ByteDance is in advanced talks to buy custom AI chips from MediaTek

ByteDance, the parent company of TikTok, is close to an agreement to buy custom AI chips from Taiwan's MediaTek for use in its data centers, according to Bloomberg.

Under the arrangement, MediaTek would deliver a yet-to-be-determined volume of application-specific integrated circuits, or ASICs — chips engineered around a particular customer's computing environment — according to Bloomberg. If the deal goes through, ByteDance would become MediaTek's second major ASIC customer, after Google $GOOGL parent Alphabet.

ByteDance did not immediately comment, and MediaTek declined to comment, according to Bloomberg.

U.S. restrictions prevent ByteDance from purchasing Nvidia $NVDA's top-tier AI chips, and the same rules apply to fellow Chinese technology giants Alibaba and Tencent, according to Bloomberg. Huawei and other domestic suppliers cannot meet all of the demand. Working directly with chip designers falls within what current U.S. export rules permit, provided the AI computing capacity a Chinese company acquires does not cross a specified ceiling.

ByteDance may increase its capital expenditure to as high as $70 billion this year, a figure that would exceed twice what the company spent in the prior year, according to Bloomberg. Spending could reach $100 billion in 2027 if economic and business conditions are favorable. ByteDance secured a $30 billion loan in September to fund the outlay.

For MediaTek, landing a sizable deal would strengthen its bid to move beyond mobile phones and compete with Qualcomm and Broadcom $AVGO in data centers, according to Bloomberg. MediaTek expects AI chip sales of about $2 billion this year and is targeting 15% of an $80 billion market next year.

Nvidia announced a $3.5 billion investment in MediaTek through convertible bonds. The deal included MediaTek's adoption of Nvidia's NVLink Fusion platform, which helps cloud providers and AI developers build custom accelerator chips.