The Risks of Deals-Based Capitalism: How Government Equity Stakes Are Reshaping Tech Investing

The U.S. economy is undergoing a seismic shift as policymakers increasingly embrace what former Treasury Secretary Larry Summers has dubbed "deals-based capitalism." This model, characterized by government equity stakes, revenue-sharing agreements, and conditional export licenses, is reshaping critical industries like semiconductors and steel. While these interventions aim to bolster national security and strategic competitiveness, they introduce profound risks for market fairness, long-term growth, and investor returns. For tech investors, the stakes are particularly high as companies like Intel, AMD, and Nvidia navigate a landscape where political influence often trumps commercial logic.

The Intel and U.S. Steel Precedent: A New Era of Government Entanglement

The Trump administration's 10% equity stake in Intel under the CHIPS Act has set a troubling precedent. By injecting $8.9 billion into Intel's common stock, the government became its largest shareholder, raising alarms about politicized corporate governance. Critics argue that this entanglement could distort Intel's decision-making, prioritizing political agendas over innovation and efficiency. For instance, U.S.-based competitors may face disadvantages in securing government contracts or regulatory relief, while private capital could be redirected to Intel not for economic reasons but due to government pressure.

The implications extend beyond Intel. The administration's push for a 15% revenue-sharing agreement on AI chip sales to China—targeting Nvidia and AMD—exemplifies the same trend. Under this arrangement, these companies must pay 15% of their Chinese sales proceeds to the government in exchange for export licenses. While this generates revenue for the U.S., it compresses profit margins and introduces regulatory uncertainty. For Nvidia, which generated $18 billion in Chinese revenue in 2024, this translates to a $2.7 billion annual payment, reducing gross margins by 8–10%. AMD, with $800 million in Chinese sales, faces a $120 million hit annually.

The Broader Risks: Market Distortions and Investor Uncertainty

Summers has long warned about the dangers of politicizing corporate governance. His concerns are not unfounded. The CHIPS Act, initially designed to boost semiconductor manufacturing, is now being weaponized to nationalize industries. This lack of foresight creates a slippery slope: if one administration can impose equity stakes on Intel, what stops future governments from doing the same in healthcare, energy, or insurance? Such moves risk distorting competition, stifling innovation, and eroding the free-market principles that have historically driven U.S. economic growth.

For investors, the consequences are twofold. First, companies with significant government stakes face heightened governance risks. Intel's stock, for example, is now subject to political whims, with its strategic direction potentially influenced by Washington rather than Wall Street. Second, the revenue-sharing model introduces unpredictable costs. Nvidia and AMD's AI-driven growth could be undermined if future administrations impose similar fees on other products or markets.

Strategic Investment Actions for a Policy-Driven Market

In this environment, investors must adopt a disciplined, risk-aware approach. Here are three key strategies:

1. Diversify Across Governance Models: Avoid overexposure to companies with heavy government entanglements. While Intel and Micron may benefit from subsidies, their governance risks make them volatile plays. Instead, consider international peers like TSMC and Samsung, which operate with less U.S. policy influence.

2. Prioritize Cost Discipline and Resilience: Focus on companies with strong execution timelines and diversified supply chains. AMD, for instance, is leveraging its AI accelerator roadmap to capture a $500 billion market by 2028. However, investors should monitor its ability to offset margin pressures from revenue-sharing agreements.

3. Hedge Against Policy Shifts: Allocate a portion of your portfolio to sectors less susceptible to political interference. Renewable energy, consumer discretionary, and healthcare—while not immune to policy changes—offer more predictable growth trajectories compared to policy-driven tech stocks.

The Long Game: Balancing Growth and Governance

The semiconductor industry's future hinges on its ability to balance innovation with policy resilience. While AI-driven demand and government-backed capital present opportunities, the lack of policy predictability introduces a new kind of risk. Investors must prepare for a world where regulatory shifts, geopolitical conflicts, and climate disruptions are the norm. Success will depend on the ability to balance growth opportunities with strategic risk management.

In conclusion, the rise of deals-based capitalism is a double-edged sword. While it may provide short-term gains for select industries, it risks creating a market where political influence trumps merit. For investors, the path forward lies in vigilance, diversification, and a clear-eyed assessment of the forces shaping the semiconductor landscape. As Summers has warned, the cardinal rule of politics is to avoid granting powers that future adversaries could exploit. In today's market, that lesson has never been more relevant.