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How much is national security worth? For the US, one answer is — apparently — a maximum of $7.5bn. That, at least, is what Nvidia and AMD may end up paying the US government, in return for being allowed to restart sales of their artificial intelligence chips to China.
The numbers at stake are surprisingly small. According to President Donald Trump’s latest deal, Nvidia and AMD can restart sales of — respectively — their H20 and MI308 chips to China in return for handing 15 per cent of revenues gleaned to the US government. China’s AI accelerator market, which these chips serve, could grow to $50bn, Nvidia’s chief Jensen Huang reckons. That sounds modest given the global market is expected to be more than 10 times that come 2030, and it will also be shared with local players. Even assuming it was entirely US dominated, that would only imply a $7.5bn take for government coffers; based on likely Nvidia and AMD sales, it is more like half that.
There is debate over the extent to which these chips pose security concerns. The H20 chip, designed specifically for China, is pretty constrained. But either way, this is a levy worth the price for the companies concerned. It enables them to shift piles of stock. Nvidia took a $4.5bn writedown on excess H20 inventory in the first quarter, following the US government’s April 9 ban on exports.
Even if the companies did not have stock to shift, chip sales have fat margins to help absorb the levy. Nvidia creams off overall gross margins of about 75 per cent, while AMD’s dropped to 40 per cent in the latest quarter. And it may be possible to pass on some of the cost to Chinese customers.
A couple of caveats pertaining to China rein in the cheer at the US chipmaking duo. One is that Nvidia’s chips are already available in China, courtesy of shell companies in third countries and smugglers who hide them in prosthetic baby bumps and crates of live lobsters.
The second is that, for US chip companies, a China sales boom may be shortlived. For evidence, look no further than the country’s pincer-like progress in producing its own high-end chips and developing AI models that require less compute power.
Epitomising the latter, DeepSeek wiped an aggregate $800bn off the market capitalisation of Nvidia and rival Broadcom in a single day, as spooked investors fretted about the outlook for high-end chips. When it comes to homegrown chips, Huawei has taken the lead and is close to narrowing the gap with US AI accelerators, according to Huang.
This illustrates the key risk for the US: that one of the world’s biggest markets is on the way to shuttering its own doors to US chip exports. Trump may be trading the US administration’s stated national security concerns for dollars in the short term. Longer term, even that choice may be out of his hands.
louise.lucas@ft.com
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