Nvidia, AMD to pay 15% of China chip sales revenue to US govt- FT

Nvidia and AMD have reportedly agreed to remit 15% of their revenue from specific chip sales in China, including Nvidia's H20 and AMD's MI308, to the U.S. government. This arrangement, facilitated by export licenses granted by the Trump administration, allows the companies to resume some sales into the critical Chinese market after prior restrictions. While enabling partial market access, the deal underscores the evolving and complex U.S.-China trade landscape, with advanced AI chip sales still prohibited under Biden-era policies.

Analysis

NVIDIA and AMD have reportedly secured partial reentry into the Chinese market for specific AI chips by agreeing to remit 15% of their associated revenue to the U.S. government. This arrangement, which applies to Nvidia's H20 and AMD's MI308 chips, allows the firms to obtain export licenses from the Trump administration after being previously blocked. While this move reopens a critical revenue stream from major Chinese clients like Baidu and Alibaba, it comes at a significant cost, effectively institutionalizing a direct tax on these sales that will compress gross margins. The deal underscores a complex and fragmented U.S. policy environment, as it provides a workaround for some products while Biden-era restrictions on the most advanced AI chips remain firmly in place. This creates a bifurcated market where U.S. firms can sell lower-tier, compliant chips but are locked out of the high-end segment, highlighting that geopolitical negotiation, rather than pure market dynamics, is now a key determinant of revenue and profitability in China.

Key Decisions for Investors

• Investors in Nvidia and AMD should model a direct 15% gross revenue reduction on sales of H20 and MI308 chips in China, which will materially compress margins from this specific market segment.
• The deal solidifies that geopolitical policy remains a primary risk factor, suggesting that valuations for semiconductor firms with high China exposure should account for regulatory uncertainty and potential government-imposed revenue sharing.
• Closely monitor any statements from the U.S. government regarding the scope and permanence of these licenses, as the framework creates a precedent that could be expanded or altered, significantly impacting future revenue streams from China.