Last week was a shock. Stay focused because this has implications not only for AI and Semis, but for the broader stock market.
The US struck an agreement with NVIDIA and AMD to issue them Chinese export licenses for a 15% revenue share.
Yes, you read that right. The Federal Government is going to receive 15% off the top from any chip sales into China, simply for giving them the right to export said chips.
What’s the back story? Taking a step back for context..
Let’s put AMD to the side and focus on NVIDIA — so, the Trump Administration had banned sales of the H20 chip into China on April 2025. That was in the days of the tariff tantrum. 👇
On April 9, 2025, NVIDIA was informed by the U.S. government that a license is required for exports of its H20 products into the China market. As a result of these new requirements, NVIDIA incurred a $4.5 billion charge in the first quarter of fiscal 2026 associated with H20 excess inventory and purchase obligations as the demand for H20 diminished. Sales of H20 products were $4.6 billion for the first quarter of fiscal 2026 prior to the new export licensing requirements.
The thing is, the H20 chip is a chip design made to adjust for previous export controls during Biden in October, 2023.
Those export controls put the H800 out of business in China, and by 2024 NVIDIA started selling the H20 as an alternative. In 2024, NVIDIA is believed to have shipped one million H20s to China.
The company disclosed that for Q2 2026 (May - July, due to NVIDIA’s financial year) they expected $8bln of H20 orders. For the same chip, 2024 sales stood at just $12bln.
Revenue is expected to be $45.0 billion, plus or minus 2%. This outlook reflects a loss in H20 revenue of approximately $8.0 billion due to the recent export control limitations.
—> So you see, losing access to China is a big financial hit for NVIDIA especially as AMD competes more fiercely and GPU orders from the US hit a plateau.
Do you remember DeepSeek? (“The DeepSeek Event”)
In late January 2025, the Chinese came out with DeepSeek — basically, the Chinese version of Chat GPT.
Peak to trough from the DeepSeek Event, NVDA shares dropped 41% — but also with the “help” of Donald’s tariffs.
Shares hit a hard bottom around the $88 area and are now at $188. What a difference a few weeks make! It was proven post-DeepSeek Event that NVIDIA’s chips were still very much needed by the Chinese, evident by the strong performance of the H20 in China.
—> This is why NVIDIA wants to sell to China and that’s why Donald basically restricted the H20 — as leverage during trade talks with China.
Post April 2025 export restrictions, NVIDIA had to impair their inventory of H20 as they had no way of selling into China and explained in their earnings call that they had nothing to announce in terms of adjusting the H20 to make it “sellable” into China.
Note that they had already reworked the H100 into the H800, and then the H800 into the H20 😂
Selling into China amidst the AI Wars is a tough business!
But things took a turn again (Donald style) last month with this announcement:
July 15 - U.S. Commerce Secretary Howard Lutnick says Nvidia plans to resume sales of its advanced AI H20 chips to China is part of U.S. negotiations on rare earths, reversing a U.S. export ban in April.
—> So Donaldo decided to reverse the ban once more and allow GPU selling into China (major news for Jensen and maybe wiped the tears off his beautiful face!)
But will this ban-unban work as it had previously?
What is the damage to NVDA, the US chips industry — and by extension the stock market if it doesn’t work?
Let’s look into China’s intentions and the financial implications attached.