Nvidia, AMD's China AI Chip Deal with US Signals Bullish Trends for AI-Related Tech Stocks, According to Wedbush

Nvidia and AMD have reportedly secured a US deal to sell AI chips in China in exchange for a 15% cut of profits. This is seen as a bullish sign for AI-related tech stocks. Wedbush notes that this deal "takes down a key risk" for the companies and could lead to increased demand for AI chips in China.

Nvidia and AMD have reportedly secured a US deal to sell artificial intelligence (AI) chips in China in exchange for a 15% cut of profits. This agreement, brokered by former President Donald Trump, is seen as a bullish sign for AI-related tech stocks. Wedbush Securities notes that this deal "takes down a key risk" for the companies and could lead to increased demand for AI chips in China [1].

The agreement allows Nvidia and AMD to resume sales of their less powerful AI processors—NVIDIA's H20 AI accelerator and AMD's MI308 chips—to China. This marks a significant departure from traditional export control policies and a reversal of earlier restrictions imposed by the Trump administration in April 2025 [1]. The deal aims to balance national security concerns with the economic interests of American technology firms, while also addressing the lucrative Chinese market.

The revenue-sharing model has sparked investor apprehension, leading to slight declines in the stock prices of both companies despite the re-issuance of export licenses. NVIDIA's shares dropped 1.16%, and AMD's slipped 2.3% in premarket trading on Monday, August 12, 2025, underscoring investor concern over the precedent set by the revenue-sharing model and its potential long-term impact on profitability [1].

The financial implications for NVIDIA and AMD are substantial. NVIDIA CEO Jensen Huang estimated that the 15% cut would result in a $2.25 billion payment to the U.S. government from NVIDIA alone, given the company's projected $15 billion in H20 chip sales to China. Similarly, AMD reported an $800 million charge in Q2 2025 related to restrictions on its MI308 chip sales to China [1].

While the deal allows NVIDIA and AMD to regain market access, their profitability from these specific sales will be significantly reduced. The 15% revenue share directly impacts their profit margins, effectively increasing their cost of doing business in China. Furthermore, China has advised its domestic companies to avoid using NVIDIA's H20 chips and to favor local alternatives, which could limit the actual sales volume and long-term effectiveness of this "deal" [1].

The U.S. government emerges as a winner in terms of a new, unprecedented revenue stream from the sales of these chips. This could be framed as a way to benefit the U.S. from continued trade with China while maintaining some level of control over technology exports. However, the deal has drawn criticism from national security, economic, and legal experts who question its constitutionality and worry it sets a dangerous precedent [1].

In the long term, Chinese domestic chipmakers are potential winners. The ongoing U.S. restrictions and the nature of this "deal" strongly incentivize China to accelerate its efforts towards semiconductor self-sufficiency. This could foster significant growth for domestic Chinese chip companies in the long run, even if it takes time to catch up to global leaders [1].

The deal signals a potential new phase in the U.S.-China trade war, where economic concessions are directly tied to market access for sensitive technologies. This "quid pro quo" arrangement is a significant departure from previous export control policies and adds another layer of complexity and unpredictability to global technology supply chains [1].

References:
[1] https://markets.financialcontent.com/stocks/article/marketminute-2025-8-12-us-strikes-unprecedented-chip-deal-nvidia-and-amd-to-share-china-revenue-raising-margin-concerns