Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) have been at the center of the contentious debate over AI chip export licensing to China. The April ban, which impacted roughly $8 billion of Nvidia’s quarterly revenue and about $1.5 billion of AMD’s annual revenue, was a major setback for the chip giants. That’s why the reported policy shift in July was seen as a real boon for both – at least at first glance.
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However, in true Trump administration fashion, any policy reversal comes with strings attached. On Sunday, the Financial Times reported that Nvidia and AMD have agreed to hand over 15% of revenue from their H20 and MI308 chips to the U.S. government in exchange for the export licenses needed to sell these products in China.
That caveat, Bernstein’s Stacy Rasgon argues, casts a shadow over what initially looked like a win.
“News of license grants following Jensen’s meeting with Trump later last week was welcome,” said the 5-star analyst, “but [the] news about government payments required in return colors it a bit.”
Even so, Rasgon points out that retaining 85% of revenue is still better than earning nothing, though he questions the precedent such an arrangement sets. Blocking Nvidia and AMD from China, he warns, would effectively hand the market to Huawei and drive Chinese developers deeper into its ecosystem, an outcome far from ideal for U.S. interests. His bigger worry is that this “slippery slope” could extend to other products and industries, forcing companies to pay simply for market access. On top of that, Rasgon says the rationale isn’t entirely clear: “Sure it might raise some money, but doesn’t seem to address any strategic issues beyond a grab for dollars.”
It’s possible that both companies could pass the cost along, particularly Nvidia, given the extraordinary demand for its products, which far outstrips AMD’s. If implemented, Rasgon thinks this kind of charge could generate a few billion dollars for the US government and trim gross margins on these products by roughly 5–15 percentage points, depending on how it’s accounted for.
For Nvidia, with H20 demand around $20 billion, the government’s cut could reach $3 billion. For AMD, with perhaps a couple of billion in demand, the hit might be a few hundred million. And while both have excluded China from current guidance, renewed licenses, even at a cost, could still mean incremental upside. Every ~$10 billion in H20 revenue for Nvidia and ~$1 billion in MI308 revenue for AMD translates to roughly $0.25 in EPS; the 15% payment trims that to about $0.20.
All told, Rasgon assigns an Outperform (i.e., Buy) rating to NVDA with a $185 price target, while maintaining a Market Perform (i.e., Neutral) rating for AMD with a $140 target, implying a 20% downside. (To watch Rasgon’s track record, click here)
As for the rest of the Street’s takes here, Nvidia claims a Strong Buy consensus rating, based on a mix of 35 Buys, 3 Holds and 1 Sell. The average target stands at $187.57, a figure that makes room for modest 12-month returns of 2%. (See NVDA stock forecast)
Meanwhile, the analyst consensus rates AMD stock a Moderate Buy, based on a combination of 26 Buys and 12 Holds. Shares are expected to appreciate by ~4% over the coming year, considering the average target clocks in at $181.36. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.