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Hardware requirements
(lemmy.zip)
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I run Jellyfin with hardware transcoding via QuickSync (through VAAPI) on a 10th-gen i3 NUC, 16gb RAM, and it seems to handle it comfortably. Your hardware should definitely be capable.
This is Proxmox with Jellyfin as native install in an LXC so it's not exactly identical to your current setup, but what I found was that passing the device through is only half of it - the host also needs the Intel driver in place for QuickSync to actually work. Try running vainfo on the host to check, if it doesn't list H.264/Hevc encode, the GPU block isn't available yet and Jellyfin will fall back to software - this is probably what you're seeing with the maxed out CPU.
After THAT, make sure Jellyfin has permission to use the passed-through device.
I was just going through this last week, migrating JF off my NAS, and it took some fiddling to get it working.