Nvidia (NASDAQ:) and Advanced Micro Devices (NASDAQ:) have struck a rare agreement to share 15% of sales revenue from certain AI chips sold to China with the Trump administration, in exchange for export license approvals.
The arrangement, which covers Nvidia’s H20 AI chip and AMD’s MI308 chip, could run into the billions given demand from Chinese customers, creating both a new revenue stream for Washington and a potential turning point for both companies’ financial outlooks.
Immediate Revenue Implications
For Nvidia, the H20 was developed specifically for China in 2023 after U.S. export restrictions limited access to its most advanced chips. The company has not shipped the H20 for months, but with licenses now approved, sales could resume quickly. Analysts estimate Chinese demand could account for several billion dollars annually in revenue—although the 15% government cut will reduce gross receipts.
For AMD, the MI308’s China market re-entry provides a similar boost. While it isn’t at the cutting edge, the MI308 serves high-performance inference workloads, a segment that is still expanding rapidly in China. Even with the revenue-sharing obligation, access to the Chinese market is expected to offset potential lost sales to domestic Chinese competitors like Huawei and Alibaba (NYSE:).
Impact on Margins and Profitability
The 15% revenue allocation to Washington effectively acts as a variable “export tax,” cutting into operating margins. However, because both companies were previously barred from selling these chips, even reduced-margin sales represent incremental profit.
- Nvidia: With AI chip gross margins historically above 70%, a 15% revenue share could trim profitability on Chinese sales by 8–10 percentage points, but net income would still rise due to the restored market access.
- AMD: Given its comparatively lower gross margins (~50%), the impact on profitability is proportionally larger, but the revenue boost from re-entering the Chinese AI market could outweigh the margin compression in the near term.
Share Price Reaction and Investor Sentiment
Markets often reward companies for regaining lost markets—even at lower profitability—if the incremental earnings are meaningful. The announcement comes amid strong AI sector demand and investor enthusiasm for any growth catalyst.
- Short Term: Share prices for both Nvidia and AMD could see a bounce as investors price in higher forward revenue guidance.
- Medium Term: Analysts will likely adjust earnings models to reflect both the revenue increase and the 15% government take, leading to more nuanced valuation changes.
- Risk Factor: Any breakdown in U.S.-China trade talks could once again suspend sales, potentially reversing gains.
Competitive Positioning in China
Re-entry into the Chinese market allows Nvidia and AMD to maintain brand presence and customer relationships, preventing domestic rivals from consolidating market share. This is particularly important as Chinese AI infrastructure spending continues to grow, even under export restrictions.
While neither the H20 nor MI308 matches the performance of top-tier chips like Nvidia’s Blackwell series, they still meet significant demand for inference and mid-tier AI workloads. That demand represents recurring revenue potential for years, provided geopolitical tensions don’t disrupt supply.
Outlook for Investors
If execution goes smoothly, the deal could:
- Add billions in incremental revenue over the next 12–18 months.
- Boost earnings per share despite the 15% government cut.
- Support stock valuations by restoring growth visibility in a key international market.
However, the arrangement also introduces a precedent for government revenue-sharing tied to export licenses—something that could expand to other sectors, impacting long-term corporate profitability.
For now, Wall Street will be watching the next quarterly earnings reports from both companies to gauge how quickly Chinese shipments ramp up and how much of the revenue trickles through to the bottom line.