China warns companies against using Nvidia and AMD chips, report says

China has reportedly instructed companies to avoid using Nvidia's H20 and AMD's chips for government and national security applications, despite recent U.S. approvals for less advanced AI chip shipments to the region. This directive follows a White House confirmation that Nvidia and AMD agreed to remit 15% of China revenues to the U.S. government, and comes amidst critical remarks from Trump regarding the H20's capabilities. The move introduces significant uncertainty for chipmakers in China's critical $50 billion AI market, highlighting escalating U.S.-China tech tensions and potentially impacting future revenue streams for companies like Nvidia and AMD.

Analysis

A recent directive from Chinese authorities instructing companies to avoid Nvidia's H20 and AMD's MI380 chips for government and national security applications introduces significant headwinds for both semiconductor firms. This development is particularly damaging as these chips were specifically engineered to comply with prior U.S. export restrictions, indicating that even compliant products face rejection amidst escalating U.S.-China tech tensions. The situation is further complicated by a new U.S. policy requiring both Nvidia and AMD to remit 15% of all China revenues to the U.S. government, a move that could be perceived as a 'reverse tariff' and may disincentivize Chinese customers. Compounding the uncertainty, former President Trump has publicly labeled the H20 chip as "obsolete" and threatened to mandate significant performance reductions on future high-end shipments. Given Nvidia CEO Jensen Huang's prior statements characterizing the Chinese AI market as a $50 billion opportunity, this confluence of Chinese government opposition, U.S. political pressure, and negative state-linked media commentary signals a material threat to future revenue streams from a critical region, as reflected in the teetering share prices of both companies.

Key Decisions for Investors

• Investors should re-evaluate revenue forecasts for Nvidia and AMD, pricing in a higher probability of significantly reduced sales in China due to the government directive and the new 15% revenue remittance to the U.S.
• Monitor geopolitical developments and policy statements from both the U.S. and China closely, as these factors have become the primary drivers of risk and valuation for chipmakers with high exposure to the Chinese market.
• Consider the long-term risk of domestic Chinese competitors gaining market share, as Beijing's directive to avoid U.S. chips will likely accelerate the development and adoption of homegrown AI hardware.