Nvidia, AMD stock plunge after revenue sharing deal with US, but analysts eye opportunity

Nvidia’s stock (NASDAQ: NVDA) took a hit in pre-market trading on Friday, dropping about 1.16% to $180.61.

The slide came after news broke that Nvidia agreed to hand over 15% of its AI chip sales revenue from China to the US government, a condition tied to getting export licenses amid tighter regulations. A

AMD stock saw a similar drop, falling roughly 2.3%, as both companies adjust to this new revenue-sharing deal with US authorities.

The agreement centers on Nvidia’s H20 AI chip, a tweaked version of its powerful H100 chip made to meet US export rules for China.

The Financial Times first reported the deal, noting the US government’s cut is part of approving these export licenses.

Nvidia could end up paying around $2.25 billion under this arrangement, showing just how big the AI chip market in China really is. AMD faces a smaller hit but still expects to pay about $120 million on its MI308 chips sold there.

Ripples through the semiconductor market

The broader chip sector felt the impact of Nvidia’s news, too, with stocks like Broadcom, Qualcomm, and AMD all slipping in pre-market trading.

This dragged Nasdaq futures down a bit, even as Dow Jones and S&P 500 futures managed small gains. Investors were also cautious ahead of key inflation data set to come out later in the week.

Nvidia stock dip caught attention since the stock had been cruising higher earlier this year, thanks to good earnings and big demand for AI chips worldwide.

But their recent forecast wasn’t as encouraging, showing the slowest revenue growth in nearly two years and tighter profit margins. That news shook up investors and dragged the stock down before the bell.

Nvidia stock: What analysts say

The market is split on what Nvidia and AMD’s deal to give 15% of their AI chip sales revenue from China to the US government really means.

On one hand, it gets them back into a crucial market, but on the other, it could cut into their profit margins by up to 15 points.

Analysts warn this could trim billions off Nvidia’s future earnings, but also see a silver lining if demand in China bounces back hard.

Wells Fargo recently raised its price target for Nvidia from $185 to $220, signaling about a 20% potential gain.

Analyst Aaron Rakers believes easing China restrictions will help Nvidia recover lost ground from the previous ban, and he points to strong demand signals ahead of Nvidia’s upcoming earnings.

Wells Fargo keeps an overweight rating on the stock, confident in the company’s resumed China sales and the growing appetite for AI chips.

Still, some experts urge caution. While Nvidia stands to gain from AI’s growth, the new revenue-sharing deal and rising competition from Chinese chipmakers add extra challenges investors should keep in mind.

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