Nvidia's Role as AI Financier Faces Its First Big Test
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Nvidia has moved from making chips to financing the companies that buy them, and credit markets are now putting that approach under strain. Shares of the neoclouds CoreWeave, Nebius and IREN, all cash-burning companies in Nvidia's portfolio, are down at least 30% this month. The spread on CoreWeave's credit default swaps has climbed past 11%, and yields on its bonds maturing in 2031 and 2032 have topped 15%.
CEO Jensen Huang's strategy has been to supply customers with investment and to help them take out loans, so that Nvidia systems reach more hands. That means using Nvidia's investment grade credit rating and backstop guarantees so that big projects, including buildouts for OpenAI, get funded at lower interest rates. In its July quarterly filing, Nvidia reported $36 billion in off-balance-sheet AI cloud agreements for neoclouds. For most of these deals Nvidia pays only if participants default. Nvidia declined to comment.
Where the exposure sits
The largest single guarantee covers up to $105 billion for chips, land and power at a proposed 10-gigawatt OpenAI data center in Pike County, Ohio, which requires Nvidia hardware for at least 20 years. If OpenAI misses payments or becomes insolvent, Nvidia can take over the lease, find a new tenant, or ask the landlord, SB Energy, to sell the facility and cover the difference. The guarantee ends if OpenAI posts its own collateral or reaches a high enough credit rating. Nvidia has also signed as a tenant for $20 billion in future data center leases, to be assigned to third parties later.
At CoreWeave, Nvidia's investment includes equity and a commitment to buy up to $6.3 billion of its compute if no one else will. CoreWeave carries roughly $51.6 billion in total debt, about $35 billion of it in notes, bonds and loans.
Other Nvidia-backed companies have stalled as well. Australian AI cloud provider Firmus withdrew its IPO plans this month. Nscale of the U.K. and SoftBank-backed SB Energy filed to go public in the U.S. in September but have given no update in weeks. Nvidia's own stock finished a third straight down week on Friday and is off 7.6% in October, on pace for its worst month since November of last year.
In August, Huang announced a partnership with six large asset managers on a $500 billion financing push that promised financial firms up to $125 billion in residual value guarantees on GPU financings. Nvidia also seeded $2 billion in Brookfield's AI Infrastructure Partners Fund, which aims to raise $10 billion. "Nvidia's AI factory platform is really an investable asset," Huang said at the time.
What Huang, analysts and Moody's say
Huang said this week that demand for neoclouds is "off the charts" and that "what is missing in the middle is the working capital to fuel that growth." He added that CoreWeave does not need Nvidia's backstop and that its cost of capital is falling.
"If the demand for compute doesn't meet these really super lofty expectations, we're going to have a problem," said David Trainer, founder and CEO of the research firm New Constructs. Its research puts the net present value of Nvidia's off-balance-sheet liabilities in fiscal 2026 above $153 billion, an increase of more than $100 billion from a year earlier.
Moody's does not count guarantees as debt when it rates corporate buyers, but the agency monitors them constantly, said vice president David Gonzales. He said chips are likely to keep values above contractual residual amounts in the near term, which would limit risk in many of Nvidia's structures. How much exposure investment grade AI players can handle is "the question we're evaluating at all times every day," Gonzales said.
Source: CNBC