Nvidia, AMD To Give 15% Of China Chip Revenue To U.S. Government: FT

Nvidia and AMD have reportedly secured U.S. export licenses for their H20 and MI308 AI chips into China by agreeing to an unprecedented 15% revenue share with the U.S. government. While this arrangement restores access to a critical market, the revenue concession is expected to directly impact profitability and could temper share price performance, despite recent rallies in NVDA, AMD, and Taiwan Semiconductor (TSM) on the initial prospect of renewed China sales.

Analysis

Nvidia and Advanced Micro Devices have reportedly secured U.S. export licenses for their China-specific AI chips—the H20 and MI308, respectively—by agreeing to an unprecedented revenue-sharing deal with the U.S. government. This arrangement mandates that the companies remit 15% of their revenue from these sales, resolving a period of regulatory uncertainty that included a ban and subsequent reversal by the Trump administration. While this agreement restores access to the critical Chinese market, the 15% revenue concession will directly impact gross margins and profitability for these product lines. The news follows a period where the stocks of Nvidia, AMD, and their key manufacturer, Taiwan Semiconductor, rallied on the initial prospect of renewed China sales, with NVDA recently hitting a record high and AMD near its 52-week peak. The introduction of this significant cost factor could temper future stock performance as the market digests the impact on earnings forecasts.

Key Decisions for Investors

• Investors should update their financial models for Nvidia and AMD to factor in a 15% reduction in revenue or a direct hit to gross margins for China-specific AI chip sales, which will temper profitability.
• Monitor for any further developments in U.S.-China trade policy, as this novel revenue-sharing agreement establishes a new precedent and introduces a significant regulatory risk to future earnings from the region.
• Given that both Nvidia and AMD stocks are trading near highs, consider the risk that current valuations may not fully reflect this new margin headwind, potentially leading to a price correction as the financial impact is quantified.
• Evaluate Taiwan Semiconductor (TSM) as a potentially more insulated beneficiary, as it gains from the increased chip production volume for both clients without being directly subject to the 15% revenue concession.