Nvidia, AMD Agree to Pay 15% of China Chip Revenues to US, Report Says

Nvidia and AMD are reportedly nearing a deal to resume key AI chip sales to China, conditional on remitting 15% of their China chip revenues to the U.S. government for export licenses. This arrangement follows significant financial impacts from prior Trump administration restrictions, including an $800 million charge for AMD and an expected $8 billion hit for Nvidia. The proposed agreement, which saw both companies' shares dip about 1% premarket, signals an unprecedented shift in U.S. trade policy and corporate engagement regarding national security export controls.

Analysis

Nvidia (NVDA) and Advanced Micro Devices (AMD) are reportedly pursuing a deal to resume AI chip sales to China by conceding 15% of their China-derived chip revenue to the U.S. government. This unprecedented arrangement follows significant financial repercussions from existing export controls, with AMD booking an $800 million charge in Q2 and Nvidia forecasting an $8 billion hit to its upcoming quarterly results. The proposal marks a significant shift in U.S. trade policy, moving from outright bans to a revenue-sharing model tied to export licenses for national security-sensitive technology. The initial market reaction was negative, with shares of both companies declining approximately 1% premarket, reflecting investor concern over the direct impact on gross margins despite the potential reopening of a critical market. This development occurs within a broader context of direct, high-stakes engagement between tech CEOs and the Trump administration, evidenced by Apple's potential tariff exemptions after U.S. investment pledges and the political pressure on Intel's leadership.

Key Decisions for Investors

• Investors in Nvidia and AMD should immediately revise their financial models to account for a potential 15% reduction in gross margin on all future China sales, as this will directly impact profitability and earnings forecasts.
• The introduction of a revenue-sharing policy sets a new precedent for regulatory risk; investors should monitor for the potential extension of this model to other technology sectors or companies with significant China exposure.
• The negative premarket stock reaction suggests the market is currently weighing the margin erosion more heavily than the benefit of resumed sales, warranting a cautious approach until the terms are finalized and the net financial impact is clarified.
• Given the varied outcomes for Apple, Intel, and the chipmakers, investors should now consider the quality and nature of a company's political engagement with the administration as a material, non-financial risk factor in their analysis.