Nvidia has issued a warning about potential legal action if the US government tries to take a share of its revenue. Currently, there are no regulations requiring a 15% revenue share from licensed H20 sales. Government officials have indicated they want this percentage. If the government acts on this, Nvidia may respond with a lawsuit. If geopolitical issues are addressed, Nvidia predicts its H20 revenue will reach between $2 billion and $5 billion in the third quarter, along with more orders. The company also sees a huge rise in AI infrastructure spending, which could hit $3 to $4 trillion by the end of the decade. An industrial revolution is on the horizon, set to change many industries. This shift offers long-term growth opportunities for Nvidia, especially in AI infrastructure. The potential dispute over a 15% revenue share on chip sales could cause short-term volatility for Nvidia. The risk of litigation against the US government creates uncertainty, which traders may take advantage of. We expect volatility to stay high in the upcoming weeks as the market looks for clarity. Traders might want to consider strategies that can benefit from big price moves, such as long straddles or strangles, with expirations in the next 30 to 60 days. The Nasdaq 100 Volatility Index (VXN) rose over 15% in the past month to 29.5, showing sector-wide concern, especially for Nvidia. These strategies can profit whether the government enforces the rule, leading to a price drop, or steps back, causing a relief rally. For those who believe the stock may drop, buying puts can serve as a protection against the government formalizing its revenue expectation. A 15% tax would directly impact earnings from the highly sought-after H20 chip, which analysts expected to boost growth significantly. We have seen similar stock price drops when the US government enforced stricter export controls in October 2023, resulting in a sharp but temporary decline. On the other hand, the long-term view shows a major surge in AI infrastructure development, with spending anticipated to reach trillions by the decade’s end. Recent data from market intelligence firm IDC predicts a 28% annual growth rate for AI-related server spending through 2028. Therefore, if there is a politically driven sell-off, bullish traders might consider selling cash-secured puts at lower strike prices, earning good premiums while preparing for a favorable entry point for a long position. The broader business narrative indicates that we are in the early stages of an AI-driven industrial revolution. Historical examples, like the initial doubt around the internet boom in the late 1990s, suggest that groundbreaking technological trends often prevail over regulatory challenges. It’s crucial to distinguish between immediate political distractions and the long-term growth potential.

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