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

Nvidia and AMD are set to resume sales of specific AI chips to China, contingent on paying 15% of their China chip revenues to the U.S. government for export licenses. This agreement, negotiated by the Trump administration due to national security concerns, comes after both companies incurred substantial financial hits from prior restrictions, including an $800 million charge for AMD and an expected $8 billion impact for Nvidia. The deal, which permits sales of less powerful chips like Nvidia's H20, establishes a new precedent for U.S. tech firms navigating trade policy, potentially linking market access to revenue sharing with the government.

Analysis

Nvidia and Advanced Micro Devices have secured a path to resume sales of specific AI chips to China, but this access is contingent upon a significant new cost structure involving a 15% revenue-sharing payment to the U.S. government for export licenses. This agreement, negotiated directly with the Trump administration, offers a partial recovery from substantial prior financial impacts, including an $800 million charge reported by AMD and an anticipated $8 billion hit for Nvidia due to earlier restrictions. It is critical to note that the approval is for less powerful chips, such as Nvidia's H20, meaning the most advanced technologies remain banned from the Chinese market. This development establishes a notable precedent where U.S. corporate access to foreign markets is directly tied to revenue-sharing with the government, a shift underscored by similar high-level engagements involving Apple. The muted immediate market reaction, with NVDA shares little changed and AMD up only 1%, suggests investors are weighing the benefit of renewed, albeit limited, market access against the material impact of the 15% levy on margins and the ongoing geopolitical uncertainty.

Key Decisions for Investors

• Investors in Nvidia and AMD must adjust their financial models to account for a direct, 15 percentage point reduction in gross margin on all future chip sales to China, weighing this against the partial revenue recovery.
• The new policy paradigm introduces a significant political risk factor; therefore, positions in technology firms with heavy China exposure should be evaluated for vulnerability to similar ad-hoc negotiations and revenue-sharing demands.
• Monitor for any follow-up negotiations, as the possibility of expanding licenses to more powerful chips, hinted at by the administration, represents a major potential upside catalyst for NVDA and AMD.
• Given the negative sentiment surrounding Intel, investors should assess the competitive landscape, as this bespoke deal could provide Nvidia and AMD a distinct, albeit costly, advantage in navigating U.S. trade policy over rivals.