AI Chip Stocks Face New Obstacle: U.S. Gov't Payment Requirement for China Licenses

Nvidia and AMD have agreed to pay 15% of their revenue from H20 and MI308 chips to the US government in exchange for export licenses to sell in China. This policy reversal, while seen as a win, raises concerns about the precedent set by requiring companies to pay for market access. The US government could earn billions of dollars from this arrangement, trimming gross margins on these products by 5-15 percentage points. The impact on earnings per share could be around $0.25 for every $10 billion in H20 revenue for Nvidia and $0.25 for every $1 billion in MI308 revenue for AMD.

Nvidia and AMD have agreed to pay 15% of their revenue from H20 and MI308 chips to the U.S. government in exchange for export licenses to sell in China. This policy reversal, while seen as a win, raises concerns about the precedent set by requiring companies to pay for market access. The U.S. government could earn billions of dollars from this arrangement, trimming gross margins on these products by 5-15 percentage points. The impact on earnings per share could be around $0.25 for every $10 billion in H20 revenue for Nvidia and $0.25 for every $1 billion in MI308 revenue for AMD.

The deal was confirmed by the White House and follows a series of export control changes. Nvidia and AMD will share revenue from Chinese sales of their respective chips, with Nvidia focusing on its H20 chip and AMD on its MI308 chip. This arrangement is seen as positive for both companies as it secures their access to the Chinese market, which accounts for a significant portion of their revenue. However, the 15% revenue cut is a notable change from previous market conditions and could impact their gross margins.

Analysts have expressed mixed opinions on the deal. While some view it as a positive development that secures market access, others caution that it sets a precedent for future market access requirements. The revenue-sharing agreement is seen as unusual but consistent with the transactional nature of the Trump administration's policies. The deal is unlikely to extend to other sectors, such as software and services, due to their more complex business models.

China's reaction to the deal remains uncertain. While the country may be unhappy with the arrangement, it is also likely to want access to these advanced chips to advance its own AI capabilities. The potential cost increase due to the 15% revenue cut could impact Chinese firms' ability to purchase these chips, but the long-term impact remains to be seen.

The impact on Nvidia and AMD's earnings per share is expected to be significant. For Nvidia, the $0.25 per $10 billion in H20 revenue could translate to a notable reduction in earnings. Similarly, AMD's $0.25 per $1 billion in MI308 revenue could also lead to a reduction in earnings. However, these impacts are seen as a trade-off for securing continued market access in China.

In conclusion, the revenue-sharing deal between Nvidia, AMD, and the U.S. government is a significant development in the semiconductor industry. While it secures market access for these companies, it also raises concerns about the precedent set by requiring companies to pay for market access. The long-term impact on both companies and the broader industry remains to be seen.

References:
[1] https://www.cnbc.com/2025/08/11/trump-nvidia-amd-china-chip-revenue-deal-implications.html
[2] https://news.bgov.com/tech-and-telecom-law/nvidia-amd-agrees-to-pay-us-15-of-china-chip-sale-revenue-1
[3] https://coincentral.com/nvidia-corporation-nvda-stock-nvidia-and-amd-to-share-15-of-china-h20-chip-sales-revenue-with-u-s-government/