Nvidia to Pay the U.S. Government 15% of China AI Chip Sales

admin — Tue, 12 Aug 2025 01:21:52 +0000

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Nvidia’s H20 AI chip situation is not ideal, but it’s significantly better than having no H20 sales.

Nvidia (NVDA -0.44%) and fellow graphics processing unit (GPU) maker Advanced Micro Devices, or AMD, have agreed to give the U.S. government 15% of their revenue from sales of their respective artificial intelligence (AI) data center chips designed for the China market in exchange for obtaining export licenses for these chips, according to the Financial Times, which first reported the story on Sunday night.

Image source: Getty Images.

The 15% AI chip revenue deal

The U.S. Commerce Department began issuing export licenses for Nvidia’s H20 chip and AMD’s MI308 chip on Friday, the Financial Times (FT) reported on Friday.

Nvidia provided a statement to the FT after it broke the government deal story on Sunday night that included the following: “We follow rules the U.S. government sets for our participation in worldwide markets.”

Background on Nvidia’s H20 chip

Nvidia had designed the H20 AI-enabling GPU specifically for the Chinese market after earlier U.S. export controls, enacted under the administration of President Joe Biden, meant it couldn’t sell its more advanced data center AI chips to China.

In mid-April, the Trump administration expanded the restrictions to include the H20. Nvidia immediately halted its sales and took a charge of $4.5 billion on its Q1 results for H20 inventory and purchase commitments.

Then in mid-July, Nvidia emailed investors who subscribe to the company’s news and said it was “filing applications to sell the Nvidia H20 GPU again. The U.S. government has assured Nvidia that licenses will be granted, and Nvidia hopes to start deliveries soon.”

At the time, there was no mention of giving the government a 15% cut of H20 revenue as a condition for obtaining export licenses.

How will Nvidia’s revenue be affected by this deal?

We can get an estimate as to how this deal will affect Nvidia’s financial results by looking at the company’s fiscal first quarter, which ended on April 27.

In that quarter, Nvidia sold $4.6 billion in H20 chips to China prior to the start of the export controls in mid-April. It said it was unable to ship $2.5 billion in H20 chips that it had already produced due to the export controls. So, had the restrictions not existed, Nvidia would have sold $7.1 billion in H20 chips to China customers in Q1. This amounts to 15.2% of $46.6 billion, which is what its total revenue would have been, absent the export controls.

Over 15% of its total revenue is significant, so you can see the importance of Nvidia’s China data center business.

For its fiscal Q2 (which ended July 27), investors should expect Nvidia to report no sales of its H20 chip, because the export restrictions were in place the entire quarter. However, H20 sales should fully rebound in fiscal Q3 (late July to late October).

When Nvidia provided Q2 guidance, it estimated that it would lose about $8 billion in H20 chip sales due to the export controls. So, keeping with roughly the same sequential quarter growth, let’s assume Q3 H20 sales will be about $9 billion. In this case, Nvidia would pay the U.S. government $1.35 billion, which is 15% of $9 billion.

While $1.35 billion seems like a huge number, it’s only a small percentage of Nvidia’s overall quarterly revenue. In Q1, Nvidia’s total revenue was $44.1 billion — and it would have been $46.6 billion, had it not “lost” sales of $2.5 billion due to the export restrictions. That $1.35 billion is only 2.9% of $46.6 billion. But the actual Q3 percentage will be smaller because Nvidia’s revenue will be higher in Q3 than Q1.

A revenue loss of somewhere between 2% to 3% of total sales is a very minor speed bump. Moreover, it’s a much better situation than having no H20 sales.

How will Nvidia’s profitability be affected by this deal?

Data by YCharts. Nvidia is much more profitable than other major chipmakers. It can easily absorb giving the government a 15% cut of its H20 revenue. All numbers are generally accepted accounting principles (GAAP) numbers.

Giving the government a 15% cut of H20 sales revenue should also negatively affect Nvidia’s bottom line. But it should be an extremely minor dent, because Nvidia’s data center platform is amazingly profitable. On that note, Nvidia overall is amazingly profitable.

Nvidia doesn’t break out its profitability by platform, so we’ll have to use its overall numbers. In Q1, Nvidia’s adjusted gross margin (gross profit divided by revenue) absent the $4.5 billion H20-related charge was 71.3%. The company provided its adjusted earnings per share (EPS) absent the charge, so I could calculate adjusted net income absent the charge and then from that calculate adjusted net profit margin (net income divided by revenue) absent the charge — which would have been 56.1%.

In other words, Nvidia converts more than half of its revenue into adjusted profits in a typical quarter, which is just phenomenal. It can easily absorb slightly less profitability on its H20 chips, which, again, account for roughly 15% of its total revenue in a typical quarter.

In short, Nvidia stock’s strong upward trajectory should not be hurt by the company having to give the government a slice of its H20 sales.

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L’Oreal sees Middle East and South Asia as growth engines

admin — Sat, 07 Jun 2025 03:47:02 +0000

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For more than a decade, China’s aspirational shoppers, spurred by a fast-growing economy and rising wages, snapped up products from cosmetics giants like L’Oreal, Estee Lauder, and Shiseido. Before the COVID pandemic hit, China appeared set to overtake the U.S. as the world’s largest makeup market.

Those boom times are over, as more Chinese consumers now turn to up-and-coming local brands, like Mao Geping and Florasis.

L’Oreal’s sales in Mainland China dropped last year, shrinking its overall North Asia sales by around 3%. The Chinese market, the bulk of the firm’s North Asia revenue, now accounts for 17% of group sales, down from 23% in 2022. The French firm continues to call China an important market, but has reportedly started cutting its retail workforce due to slower Chinese demand.

As China stagnates, L’Oreal is now looking to regions, like the Middle East and Southeast Asia, as a source of growth.

SAPMENA—L’Oreal’s term for “South Asia Pacific, Middle East, and North Africa”—will soon “play a much bigger role” when it comes to beauty, says Vismay Sharma, who oversees the region for the French cosmetics firm.

L’Oreal, No. 91 on Fortune’s Europe 500, reported sales of 1.1 billion euros ($1.19 billion) for the first quarter of 2025, up 12.2% year-on-year, across SAPMENA and Sub-Saharan Africa (SSA).

That’s still small compared to other regions, sitting far behind Europe, North America and North Asia. But while SAPMENA-SSA only contributed 9.2% of L’Oreal’s quarterly revenue, it was the only region to log double-digit growth.

SAPMENA covers a huge swathe of the globe, stretching from Morocco all the way down to New Zealand just under 19,000 kilometers away. The region’s 35 markets cover 3 billion people, or about 40% of the world’s population, yet only accounts for 10% of global beauty sales. “It has to come together, and eventually demographics have to win,” Sharma says.

SAPMENA’s quick growth doesn’t surprise Sharma. “The consumers in this part of the world are about 5 years younger than the rest of the world, live in aspirational societies and in economies that are growing fast,” he says.

China has proved to be a tricky market for global cosmetics firms post-pandemic. Sluggish China sales have dragged down the financial results of U.S. firm Estee Lauder and Japan’s Shiseido.

A sluggish economy and stagnant consumption are partly to blame. But there’s also new competition. “C-Beauty” brands are starting to pick up steam among Chinese shoppers, with new brands going viral on Douyin, the Chinese version of TikTok, and other social media platforms. (L’Oreal is paying attention, investing in local Chinese brands like To Summer)

Still, Sharma thinks China offers lessons for SAPMENA.

Southeast Asia, like China, has highly connected consumers who are used to e-commerce and livestreaming. For example, Sharma notes that over 50% of L’Oreal’s business in Vietnam comes from e-commerce.

This is less true of the Middle East and North Africa.

“When you look at the ecosystem of beauty over there, you still don’t have TikTok Shop. They’re still a few years behind platforms like Shopee, like Lazada,” he says.

Yet consumers in the Middle East share similar preferences to those in Southeast Asia. “Expectations for beauty are very similar. We can see aspirations in terms of kind of hair, skin, lips, and eyes,” Sharma says, pointing to a preference for longer black hair as an example.

That gives L’Oreal a chance to grow in the region. “Our ability to create content at scale in the GCC becomes a huge advantage,” Sharma says.

This story was originally featured on Fortune.com