Nvidia and AMD reportedly strike deals with Trump — but analysts see a ‘slippery slope'

Nvidia and AMD have reportedly secured export licenses to resume selling specific AI chips in China, contingent on remitting 15% of associated revenues to the U.S. government. Bernstein analysts view this unprecedented "pay-to-play" arrangement as a "slippery slope" that lacks clear strategic purpose beyond revenue generation, while potentially impacting the companies' profitability and setting a concerning precedent for future trade agreements. Despite the revenue cut, the deal reopens access to a significant market for these chipmakers.

Analysis

Nvidia and Advanced Micro Devices have reportedly regained access to the Chinese market for their H20 and MI308 AI chips, respectively, contingent upon an unprecedented agreement to remit 15% of the associated revenue to the U.S. government. While this development prevents the Chinese AI market from being ceded entirely to competitors like Huawei, it introduces significant profitability pressures and policy risks. Bernstein analysts project the 15% levy could reduce the earnings per share contribution from these sales by about 20% (from 25 cents to 20 cents per share for every $10B in NVDA revenue and $1B in AMD revenue) and could depress overall corporate gross margins by approximately one percentage point. The demand appears substantial, with estimates for Nvidia's H20 chips in China reaching $20 billion, potentially creating a $3 billion revenue stream for the U.S. government. Analysts see this "pay-to-play" deal as a "slippery slope" that sets a worrying precedent for U.S. trade policy without addressing the underlying national security concerns. A potential mitigating factor is the possibility that newer, compliant products, such as those based on Nvidia's upcoming Blackwell architecture, may not be subject to this arrangement.

Key Decisions for Investors

• Investors should update financial models for both Nvidia and AMD to reflect the resumption of specific China sales, while factoring in a direct 15% reduction on that revenue stream and an approximate 100 basis point impact on overall gross margins.
• Monitor for any signs that this 'pay-to-play' policy might be extended to future product lines, such as Nvidia's Blackwell series, as the precedent introduces a significant long-term political and regulatory risk to the business model.
• While the deal provides a near-term revenue catalyst by unlocking significant pent-up demand, the unprecedented revenue-sharing requirement introduces a new layer of policy uncertainty that could temper valuation multiples for both companies.