Nvidia to Hand Over 15% of Revenue from AI Chip Sales in China to the U.S. Government; Examining Potential Financial Repercussions
Nvidia Agrees to Share 15% of AI Chip Sales Revenue with U.S. Government for Access to China Market
In an extraordinary move, Nvidia has agreed to give the U.S. government 15% of its revenue from AI chip sales in China as part of a deal to obtain export licenses for certain AI chips, specifically the H20 chip. This agreement, reached during President Trump's administration in August 2025, allows Nvidia to sell to the Chinese market again [1][2][3].
The U.S. government halted advanced AI chip sales to China in April, citing national security concerns. However, this agreement allows sales of somewhat "older" or "dumbed-down" chips, such as Nvidia’s H20 and AMD’s MI308, while more advanced chips like Nvidia's Blackwell remain restricted [3][4][5].
Nvidia has not shipped the H20 chip to China for months, but the company hopes future export rules will continue to permit competitive sales in China and worldwide [2][3]. The deal remains active and forms the basis for the U.S. government granting export licenses to Nvidia and AMD for AI chips to China [1][2][3].
This revenue-sharing arrangement between the U.S. government and private companies is highly unusual and considered unprecedented. It raises concerns among analysts and lawmakers about policy being influenced by direct financial arrangements between the government and corporations [4].
The Trump administration hinted at possibly extending such revenue-sharing models for more advanced chips, but only if they are "dumbed-down" or discounted significantly (30-50%) [4]. National security concerns from both U.S. and Chinese officials regarding the potential risks of advanced technology transfer persist, despite the supposed safeguards [5].
The deal may incentivize Nvidia and AMD to adjust pricing strategies in China to maintain margins after paying the government cut, which could affect market dynamics [5]. Nvidia has expressed that adhering to U.S. government rules helps maintain American leadership in AI technology globally [3].
It's worth noting that Nvidia is more profitable than other major chipmakers. The company typically converts more than half of its revenue into adjusted profits in a typical quarter [6]. In Q1, Nvidia's adjusted gross margin was 71.3% and its adjusted net profit margin was 56.1% [7]. The $1.35 billion paid to the U.S. government, which is 15% of Q3 H20 sales, only amounts to 2.9% of Nvidia's Q1 total revenue of $46.6 billion [8].
In summary, the agreement between Nvidia and the U.S. government to share 15% of AI chip sales revenue from China in exchange for export licenses is currently in effect primarily for certain older AI chips, with broader trade and national security implications ongoing and debated [1][2][3][4][5]. The deal sets a precedent for a "pay-to-play" model in trade policy, and its future implications are significant.
Investing a portion of Nvidia's AI chip sales revenue from China towards the U.S. government could impact their financial strategy, as they might need to adjust pricing in order to maintain profit margins, thereby influencing market dynamics. Moreover, this revenue-sharing agreement in the realm of technology and finance could signal a new direction in trade policy, possibly paving the way for future "pay-to-play" models.
