TLDR
- Nvidia stock fell 0.4% in premarket trading following news of a revenue-sharing deal with the Trump administration for AI chip sales to China
- The deal requires Nvidia and AMD to pay 15% of China revenue to the U.S. government, potentially creating a $5 billion annual tax
- Trump suggested allowing a reduced-capability version of Nvidia’s Blackwell chips to be sold in China at 30-50% performance levels
- Chinese authorities warned local companies against using Nvidia’s H20 chips for government work due to security concerns
- Analysts estimate the China market could generate $30-35 billion in combined revenue for AI chip makers
Nvidia shares dropped 0.4% in premarket trading Tuesday as investors weighed competing forces around the company’s China strategy. The stock closed down 0.4% Monday and continued sliding as markets processed new developments.
The chip giant recently struck a deal with the Trump White House to resume AI chip sales to China. The agreement comes with strings attached – both Nvidia and rival AMD must pay 15% of their China revenue to the U.S. government.
CFRA analyst Angelo Zino estimates the combined market could generate $30-35 billion in annual revenue. That would create roughly $5 billion in government payments over the next year.
“We acknowledge the tax will have a negative impact on profit margins tied to China sales but view the re-entry into the second-largest GPU market to be worth the cost,” Zino wrote.
Trump added another wrinkle Monday during a press conference. He suggested allowing Nvidia to sell a watered-down version of its current Blackwell hardware in China.
“A somewhat enhanced-in-a-negative-way Blackwell. In other words, take 30% to 50% off of it,” Trump told reporters.
Beijing Pushes Back
While Washington opened the door, Beijing appears to be closing it. Chinese authorities recently warned local companies against using Nvidia’s H20 chips for government-related work.
The warnings came through official notices sent to firms over recent weeks. Bloomberg reported the guidance specifically cautioned against using H20 processors for national security purposes.
State enterprises and private companies both received the advisories. Chinese officials cited security concerns about the chips.
Beijing worries the processors could include location-tracking capabilities. Officials also fear potential remote shutdown functions built into the hardware.
Nvidia has pushed back against these claims. The company stated “the H20 is not a military product or for government infrastructure.”
The chip maker maintains China has sufficient domestic supply. Nvidia argues the country “won’t and never has relied on American chips for government operations.”
Chinese state media has questioned the security and reliability of H20 chips in recent reports. The coverage appears coordinated with the government warnings.
Market Implications
The dual pressure creates uncertainty for Nvidia’s China strategy. Legal challenges to the Trump deal could further complicate matters.
Trade negotiations between Washington and Beijing add another layer of complexity. Trump extended a trade truce through November 9 as both sides work toward a permanent tariff agreement.
Nvidia’s China access may become a bargaining chip in those broader discussions. The company has limited control over that diplomatic process.
Other chip makers showed mixed reactions Tuesday morning. AMD shares traded flat while Broadcom gained 0.2% in premarket trading.
Wall Street maintains a bullish outlook despite China uncertainties. Analysts rate Nvidia a Strong Buy with 35 Buy recommendations, three Holds, and one Sell.
The average price target sits at $187.57, suggesting 3% upside from current levels. The stock has climbed 36% year-to-date on AI demand.
Chinese authorities are also encouraging domestic chip adoption as part of the warnings. Beijing wants local firms to reduce dependence on Western processors and boost homegrown alternatives.
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