Nvidia's Strategic Access to China Amid U.S. Export Restrictions and Revenue-Sharing Terms

The U.S.-China tech rivalry has reached a pivotal inflection point, with Nvidia at the center of a high-stakes geopolitical gamble. In 2025, the Trump administration brokered a controversial revenue-sharing deal with semiconductor giants Nvidia and AMD, permitting the export of advanced AI chips like the H20 and MI308 to China in exchange for a 15% cut of sales revenue [1]. This arrangement, framed as a compromise between economic interests and national security, raises critical questions about its long-term implications for Nvidia’s valuation, competitive positioning, and the broader semiconductor industry.

The Geopolitical Trade-Off: Access vs. Risk

The deal effectively functions as an export tax, a practice explicitly prohibited under the U.S. Constitution’s Article I, Section 9 [2]. By granting access to China’s $8.17 billion AI chip market in 2025—a market projected to grow at a 30.69% CAGR through 2030—Nvidia secures a critical revenue stream while ceding 15% of its profits to the U.S. government [3]. For context, Bernstein estimates that Nvidia’s H20 chip sales in China could generate $23 billion in 2025, translating to $3.45 billion in annual payments to Washington [4]. While this margin compression (estimated at 5–15 percentage points) is significant, the H20’s gross margins of 65–75% ensure the product remains highly profitable [4].

However, the arrangement introduces strategic risks. Critics, including Rep. Raja Krishnamoorthi, argue that the deal incentivizes the transfer of cutting-edge AI technology to China, potentially bolstering its military and AI capabilities [5]. This tension underscores a broader dilemma: while the U.S. seeks to maintain technological dominance, its policies risk creating a “race to the bottom” by subsidizing Chinese access to advanced tools.

Competitive Positioning: Nvidia’s Edge and Emerging Threats

Nvidia’s Q2 FY2026 results highlight its dominance in the data center segment, which contributed $41.1 billion of its $46.7 billion total revenue—far outpacing AMD and Intel [6]. The China deal further cements its leadership, with Zacks projecting 52.2% year-over-year revenue growth for fiscal 2026 [7]. Yet, this advantage is not without challenges.

AMD, which also participates in the revenue-sharing agreement, faces margin pressures similar to Nvidia. Meanwhile, Intel’s strategic pivot under the Trump administration—seeking a 10% equity stake in exchange for CHIPS Act funding—signals a shift toward domestic manufacturing and process innovation [8]. Intel’s recent $2 billion investment from SoftBank, coupled with its focus on the 14A process, could narrow the gap with TSMC and reinvigorate its AI chip ambitions [8].

China’s push for self-sufficiency adds another layer of complexity. Domestic players like Huawei are advancing alternatives such as the Ascend 910C, while government initiatives like “Eastern Data, Western Computing” aim to decentralize AI infrastructure [9]. These efforts, backed by $28 billion in data center investments, could reduce China’s reliance on U.S. chips over time.

Valuation Implications: Margin Compression vs. Market Expansion

The 15% revenue-sharing agreement will modestly reduce Nvidia’s gross margins but is unlikely to derail its growth trajectory. With China representing a potential $50 billion revenue opportunity in 2025 alone [10], the trade-off appears favorable in the short term. However, long-term valuation risks include:
1. Policy Volatility: The deal’s legal ambiguity and constitutional challenges could lead to abrupt policy shifts, disrupting market access.
2. Margin Erosion: As China scales domestic alternatives, demand for U.S. chips may plateau, forcing Nvidia to compete on price.
3. Strategic Precedent: The revenue-sharing model could normalize government intervention in private sector operations, complicating future negotiations.

Conclusion: A Calculated Bet in a Fractured Landscape

Nvidia’s China strategy reflects a calculated bet on market access over immediate margin preservation. While the revenue-sharing deal secures its foothold in a rapidly expanding market, it also exposes the company to geopolitical and regulatory uncertainties. For investors, the key question is whether the long-term benefits of dominating China’s AI infrastructure outweigh the risks of policy overreach and domestic competition.

In the broader semiconductor industry, this deal signals a new era of state-driven market intervention, where national security and economic interests collide. As China advances its self-sufficiency goals and U.S. policymakers grapple with constitutional and strategic dilemmas, Nvidia’s valuation will hinge on its ability to navigate these crosscurrents while maintaining its technological edge.

Source:
[1] Inside the U.S. Government's Bold Revenue-Sharing Deal [https://www.z2data.com/insights/inside-us-governments-revenue-sharing-deal-with-chipmakers-nvidia-amd]
[2] The Trouble With Trump's Deal With Nvidia and AMD [https://taxpolicycenter.org/taxvox/trouble-trumps-deal-nvidia-and-amd-its-export-tax]
[3] China Artificial Intelligence (AI) Optimised Data Center Market Trends [https://www.mordorintelligence.com/industry-reports/china-artificial-intelligence-ai-data-center-market]
[4] Bernstein estimates $23 billion in 2025 sales for Nividia's H20 chips in China, translating to $3.45 billion annually for the U.S. government [https://etedge-insights.com/featured-insights/nvidia-and-amd-strike-15-revenue-sharing-deal-with-u-s-for-china-ai-chip-sales/]
[5] Ranking Member Krishnamoorthi Condemns Reported Nvidia [http://democrats-selectcommitteeontheccp.house.gov/media/press-releases/ranking-member-krishnamoorthi-condemns-reported-nvidia-amd-revenue-sharing]
[6] Is Nvidia Still a Smart Buy?: AI for Financial Report Reading [https://powerdrill.ai/blog/ai-reads-financial-report]
[7] NVIDIA Wins China Sales Approval: Will H20 Chip Deal Boost [https://finance.yahoo.com/news/nvidia-wins-china-sales-approval-132300538.html]
[8] Data Center Chip Giants Negotiate Political Moves, Tariffs, and Corporate Strategies [https://www.datacenterfrontier.com/machine-learning/article/55310898/data-center-chip-giants-negotiate-political-moves-tariffs-and-corporate-strategies]
[9] China Artificial Intelligence (AI) Optimised Data Center Market Trends [https://www.mordorintelligence.com/industry-reports/china-artificial-intelligence-ai-data-center-market]
[10] Jensen Huang Wants China's Big AI Market for Nvidia and for America [https://www.investopedia.com/jensen-huang-wants-china-s-big-ai-market-for-nvidia-and-for-america-11799765]