Why I Think Nvidia’s Gross Profit Won’t Suffer from China Levies

Gene Munster, Brian BakerAugust 12, 2025

I believe Nvidia can maintain gross profit dollars on its China business (13-15% of revenue) despite the revenue-sharing arrangement with the US government, because they should be able to raise prices by about 18% without hurting demand. This likely settles the China discussion until Nvidia releases a scaled-down Blackwell chip for the Chinese market, an area where Trump has left the door open for changes to revenue share percentages. The biggest remaining question is what this means for Tesla and Apple.

Key Takeaways

The US has approved Nvidia's exports of H20 chips to China in return for an unprecedented 15% cut of the revenue.

Nvidia will likely increase prices on the H20 in China by 18% or more to offset the gross profit dollar impact. Margins will likely come down slightly and that's Ok. I don’t believe demand will be affected by the higher price given these chips are strategic for China.

This deal marks a new phase for US tech firms selling to China: a “pay-to-play” model that layers revenue sharing on top of export controls.

The Deal

Give credit to Jensen Huang for negotiating the 15% revenue share with the White House, down from Trump’s initial 20% proposal. Huang persuaded Trump that selling chips to China would deepen China’s reliance on US technology. He argued that blocking sales could accelerate China’s domestic chip development to fill the Nvidia supply gap. I believe this deal will do little to slow Chinese AI chip innovation. The PRC does not want to depend on the US for something as critical as AI, just as the US does not want to depend on China for rare earth metals.

What stood out to me was Nvidia’s pledge to invest up to $500B in US infrastructure. This investment was not enough to sway the White House, unlike Apple’s additional $100B commitment which won tariff relief. While export regulations legally prohibit fees tied to licenses, it is unlikely Nvidia or AMD will challenge the agreement.

Assessing Nvidia's Margin Impact

I believe Nvidia’s gross profit will be largely unaffected, since they can pass the revenue-share cost to Chinese customers. The math: maintaining gross profit dollars requires an 18% price hike, even though the government’s cut is 15%.

As for gross margins, Street estimates for next year are 71%. If Nvidia raises prices by 18% and preserves gross profit dollars, margins on the China H20 business would drop to about 60% from 71%, assuming China H20 sales are 15% of revenue. This would pull overall gross margin to 69.3% from 71%.

The gross profit math is simple, but gross margin math is trickier because the government’s 15% cut also applies to the increased price. Margins will dip slightly, but I expect investors to focus on gross profit dollars rather than margins, given this is an external, policy-driven pressure.

State-Sponsored Capitalism

Likely candidates for similar treatment include Qualcomm, Broadcom, Micron, and Applied Materials. Their China exposure is smaller than Nvidia’s 13-15%, so the impact may be less severe.

The bigger question is whether Tesla and Apple will face similar deals. Apple has so far avoided revenue sharing by committing $100B in US investment, paralleling Nvidia’s initial $500B offer.

Based on my conversations with former US trade officials, the policy has two goals:

Increase US technological dominance through domestic manufacturing
Boost government revenue

A 15% revenue share on Apple’s China business would bring about $12B annually to the US government, more than twice Nvidia’s contribution. For Tesla, it would be closer to $3B. I believe within a year, more US tech companies selling to China will be pressured to adopt similar revenue share agreements.

Disclaimer