Nvidia in ‘dialogue’ with US government on next-gen chip sales to China

Nvidia CEO Jensen Huang confirmed ongoing dialogue with the U.S. government regarding sales of next-generation AI chips to China, following an unusual agreement where Nvidia and AMD remit 15% of H20/MI308 revenue for export licenses. This revenue-sharing deal, which has raised legal and national security concerns among lawmakers, is viewed by the Trump administration as a 'creative idea' potentially expandable to other companies. Nvidia is also reportedly developing a new China-specific chip based on its advanced Blackwell architecture, signaling continued efforts to navigate export restrictions while maintaining market access.

Analysis

Nvidia is actively navigating complex U.S. export controls to maintain access to the Chinese market, as confirmed by CEO Jensen Huang's statement about being in "dialogue" with the government over next-generation AI chip sales. This follows a novel and contentious agreement where both Nvidia and AMD will remit 15% of revenue from their China-specific H20 and MI308 chips to secure export licenses. While this arrangement reopens a critical revenue stream after a months-long halt, it introduces significant uncertainty and direct costs. The deal's structure faces potential legal challenges and has drawn bipartisan criticism over national security implications. Nevertheless, the Trump administration views it as a "creative idea" that could be expanded, signaling a potential shift in U.S. policy from outright bans to a framework of monetized and controlled technology access. Nvidia's reported development of a new, reduced-capacity chip for China based on its advanced Blackwell architecture further illustrates its strategy to engineer compliant products to protect its market share, though the approval and terms for such future products remain speculative.

Key Decisions for Investors

• Investors should closely monitor the legal and political developments surrounding the 15% revenue-sharing agreement, as any successful legal challenge or shift in policy could abruptly alter the revenue outlook for Nvidia's and AMD's China sales.
• Factor the 15% revenue remittance into valuation models for China-specific sales, as this will directly impact gross margins and profitability for the H20 and MI308 chip segments.
• Consider the elevated geopolitical risk premium for semiconductor stocks with high China exposure, as the current framework is fluid and subject to the outcome of ongoing dialogues between the companies and the U.S. government.