The Strategic Implications of U.S. Revenue-Sharing Deals on AI Chip Stocks

The U.S.-China tech rivalry has entered a new phase, marked by a controversial yet financially lucrative arrangement between the Trump administration and semiconductor giants Nvidia and Advanced Micro Devices (AMD). Under this deal, both companies agreed to share 15% of their revenue from advanced AI chip sales in China with the U.S. government in exchange for export licenses. This unprecedented policy shift has profound implications for investors, blending geopolitical strategy with corporate profitability. For Nvidia and AMD, the trade-off between market access and margin compression raises critical questions about long-term value creation in a fragmented global semiconductor landscape.

The Financial Mechanics of the Revenue-Sharing Model

The 15% revenue-sharing agreement applies to chips like Nvidia's H20 and AMD's MI308, which are tailored for AI inference and mid-tier computing. These products had been previously banned from China due to U.S. export controls, but the new arrangement allows both firms to tap into a $400 billion AI infrastructure market. For Nvidia, which generated $17 billion in Chinese revenue in its last fiscal year (13% of total sales), the 15% tax is projected to reduce gross margins by 8–10 percentage points. AMD, with $6.2 billion in Chinese revenue (24% of total sales), faces a similar margin drag of 5–7 percentage points.

Investor sentiment has already adjusted to this new reality. By August 2025, Nvidia's price-to-earnings (P/E) ratio had fallen from 50x to 42x, while AMD's dropped from 60x to 52x, reflecting the market's recalibration of profit expectations. However, the AI sector's structural growth—China's AI infrastructure spending is projected to grow at a 35% compound annual growth rate—offers a counterbalance. If revenue from China continues to rise, the margin pressures could be offset by volume growth.

Geopolitical Risks: A Double-Edged Sword

The revenue-sharing model is not without significant geopolitical risks. By monetizing export licenses, the U.S. government has introduced a transactional approach to trade policy that blurs the lines between economic strategy and national security. Critics argue this could set a dangerous precedent, enabling future administrations to demand revenue shares from other industries or countries. Legal scholars have also questioned the constitutionality of the arrangement, as the U.S. Constitution prohibits export taxes. If challenged in court, the deal could face retroactive invalidation, creating regulatory uncertainty for both companies.

Moreover, the arrangement risks accelerating China's push for semiconductor self-reliance. Chinese firms like Huawei and Alibaba are already developing advanced AI chips (e.g., Huawei's Ascend 910D and Alibaba's CloudMatrix 384) to reduce dependency on U.S. technology. The 15% tax, combined with U.S. export restrictions, may incentivize Beijing to double down on domestic production, eroding Nvidia and AMD's long-term market share.

Strategic Implications for Investors

For investors, the key lies in balancing near-term margin pressures with the long-term potential of the AI sector. While the 15% tax is a drag on profitability, it also ensures continued access to a high-growth market. Nvidia and AMD must innovate within regulatory constraints, such as developing lower-performance but export-compliant chips, to maintain their competitive edge. However, the bifurcation of the global semiconductor market—where U.S. firms dominate allied nations but face structural disadvantages in China—could lead to a fragmented ecosystem, complicating supply chains and reducing economies of scale.

The geopolitical risks extend beyond China. If the U.S. government expands the revenue-sharing model to other industries or countries, it could trigger retaliatory measures from trading partners, further destabilizing global markets. Investors should also monitor the legal and political landscape, as shifts in administration or court rulings could abruptly alter the terms of these agreements.

Investment Advice: Hedging Against Uncertainty

Given the complex interplay of profitability and geopolitical risk, investors in Nvidia and AMD should adopt a cautious, diversified approach. While the AI sector's growth potential remains robust, the following strategies are recommended:

1. Position for AI Sector Growth: Allocate a portion of the portfolio to AI-driven equities, leveraging the sector's long-term tailwinds.
2. Hedge Against Regulatory Risk: Consider short-term options or hedging instruments to mitigate potential margin compression from policy shifts.
3. Monitor Geopolitical Developments: Stay informed on U.S.-China trade negotiations and legal challenges to the revenue-sharing model.
4. Diversify Exposure: Balance holdings in U.S. semiconductor firms with investments in companies developing alternative technologies (e.g., EU or Japanese chipmakers) to reduce reliance on a single geopolitical dynamic.

Conclusion

The U.S. revenue-sharing deals with Nvidia and AMD represent a pivotal moment in the evolution of global semiconductor trade. While the arrangement provides immediate financial benefits to the U.S. Treasury and preserves market access for these firms, it introduces significant long-term risks, including regulatory uncertainty, legal challenges, and the acceleration of China's self-reliance in chipmaking. For investors, the key is to navigate this complex landscape by balancing the AI sector's growth potential with strategic hedging against geopolitical volatility. In a world where technology and trade policy are increasingly intertwined, adaptability and foresight will be the cornerstones of successful investment.