Nvidia and AMD Chips Banned in China: Companies Warned Against Use

China has warned companies against using Nvidia and AMD chips, citing national security concerns. Nvidia CEO Jensen Huang has estimated the Chinese AI market will reach $50 billion in the next two to three years, making it a significant market for the company. Trump has called Nvidia's H20 chip "obsolete" and threatened to ban higher-end Blackwell shipments to China without a significant performance decrease.

In a significant shift in trade policy, the Trump administration has cleared Nvidia and AMD to resume sales of certain artificial intelligence chips to China, but with a unique condition: the U.S. government will receive 15 percent of the revenue from these sales [1]. This move, announced after a meeting between Nvidia CEO Jensen Huang and President Donald Trump, marks a departure from previous export control measures and has sparked debate among analysts and lawmakers.

The agreement allows Nvidia's H20 and AMD's MI308 processors, which are less powerful versions of their top AI processors, to be licensed for sale in China. This decision comes after the Trump administration extended Biden-era export controls in April, blocking even these downgraded chips [1]. The licenses were granted following a White House meeting in June, with the 15 percent revenue-sharing condition being implemented in July [1].

The move has been criticized by some U.S. lawmakers and security officials who argue that even limited AI chips could strengthen China's military and surveillance capabilities. Representative Raja Krishnamoorthi, for instance, called the agreement "a dangerous misuse of export controls that undermines our national security" [1]. Nvidia disputes that the H20 poses military risks and denies Chinese state media claims that its chips contain "backdoors" or "kill switches" [1].

The deal also comes as part of broader talks with Beijing over rare-earth minerals, a sector dominated by China, and as a U.S.-China trade truce nears expiration. Commerce Secretary Howard Lutnick linked the chip licenses to these discussions [1].

Analysts at Bernstein Research estimate Nvidia could sell about 1.5 million H20 chips in China this year, bringing in some $23 billion in revenue. A 15 percent cut could yield the U.S. government more than $3 billion [1]. While the agreement reopens access to a market projected to spend $100 billion on AI this year, it comes with lower profit margins and heightened political scrutiny [1].

Investors have generally viewed the move positively for both Nvidia and AMD, as they secure access to a significant market. Shares of Nvidia and AMD were about 1 percent lower in premarket trading Monday, reflecting a cautious market reaction [2]. Nvidia's plans to resume sales to China came after several high-profile visits to the White House by CEO Jensen Huang, including one last week [2].

President Trump has also indicated that he might allow Nvidia to sell a scaled-down version of its most advanced AI chip, the Blackwell, to China, but only if the company cuts its performance by 30 percent to 50 percent [1]. The Blackwell chips are faster, more energy-efficient, and built for advanced AI work such as training large language models, running complex algorithms, and powering generative AI.

The deal raises questions about the precedent it sets for future export control policies. Critics argue that turning export controls into a revenue generator changes their purpose and may raise constitutional questions [1]. The administration, however, calls the 15 percent payment a licensing condition, not a tax.

References:
[1] https://www.newsweek.com/us-take-cut-ai-chip-sales-china-security-risk-easy-money-2111850
[2] https://www.investopedia.com/nvidia-amd-agree-to-pay-15-percent-of-china-chip-revenues-to-us-report-says-11788331