• Nvidia and AMD will pay 15% of their revenues from AI chip sales in China to the U.S. government.
• The deal is part of an unprecedented agreement tied to export licenses for Nvidia's H20 and AMD's MI308 chips.
• U.S. officials and lawmakers raise concerns over the legal implications and national security risks posed by this arrangement.
• China has urged local firms to avoid using Nvidia's H20 chips, complicating the companies' market access.
• The revenue-sharing agreement could yield over $3 billion for the U.S. government if demand for the H20 chip meets expectations.

Nvidia and Advanced Micro Devices (AMD) have entered into an unusual agreement with the U.S. government, committing to pay 15% of their revenue from sales of artificial intelligence chips in China. This arrangement is in exchange for export licenses allowing these sales, following a temporary halt imposed earlier by the Trump administration due to national security concerns. The deal specifically covers Nvidia's H20 chip and AMD's MI308 chip, both designed to comply with U.S. restrictions while targeting the Chinese market, according to SCMP, Channel News Asia, BBC, and The Jakarta Post.

The unusual payment structure raises significant legal questions and has sparked bipartisan concern among U.S. lawmakers. Critics argue that such a deal blurs the lines of national security policy, traditionally regarded as non-negotiable. U.S. Representative John Moolenaar stated, “Export controls are a frontline defense in protecting our national security... we should not set a precedent that incentivizes the government to grant licenses to sell China technology that will enhance its AI capabilities,” as reported by The Hill and LA Times.

In the midst of this agreement, China has issued guidance discouraging domestic companies from using Nvidia's H20 chips, particularly for government-related projects, which complicates the efforts by both Nvidia and AMD to recapture revenues lost during the export ban. Chinese authorities are urging local firms to turn to domestic alternatives, citing security concerns regarding foreign chips, as covered by Reuters and Al Jazeera.

According to industry analysts, if demand for Nvidia's H20 chip aligns with projections, the agreement could potentially generate approximately $3 billion for the U.S. government. This revenue-sharing concept, termed unprecedented, raises concerns about the implications for future U.S. trade relations and export control protocols, as highlighted by Newsweek and Latimes.