Nvidia Faces First Big Test as AI Financier While Neocloud Stocks Tumble

Nvidia has moved well beyond making chips and now funds much of the AI buildout, from model developers to data center firms and neoclouds. That strategy is facing its first real stress test as credit markets tighten and bond yields rise. CEO Jensen Huang has tried to put more systems in customers’ hands by investing in them and helping them borrow, using Nvidia’s investment grade credit rating to secure cheaper funding. David Trainer of New Constructs warns that if demand for computing power falls short of lofty expectations, the industry will have a problem. Nvidia declined to comment.

How Much Risk Nvidia Carries on Its Books

As of its July filing, Nvidia had $36 billion in off balance sheet backstops for neoclouds. It also guarantees up to $105 billion for chips, land and power at a proposed 10 gigawatt OpenAI data center in Ohio, and it signed as tenant on $20 billion of future data center leases that will later be passed to third parties. In most of these deals Nvidia only pays if participants default. Its equity portfolio, which includes big stakes in OpenAI and Anthropic, was worth $99 billion in the second quarter.

Neocloud Stocks Slide and CoreWeave Credit Fears Grow

CoreWeave, Nebius and IREN, all cash burning companies in Nvidia’s portfolio, have fallen at least 30% this month. CoreWeave’s credit default swap spread has jumped above 10%. Firmus pulled its IPO plans, while Nscale and SB Energy have gone quiet after filing in September. Nvidia ended a third straight losing week, down 7% in October, its worst month since November last year. Huang insists demand for neoclouds is off the charts and says the missing piece is working capital.

Nvidia’s Size, Revenue and Growing Competition

With a market value near $5 trillion, Nvidia posted $216 billion in revenue last fiscal year, roughly eight times the level when ChatGPT launched. Its Vera Rubin rack holds 72 GPUs and costs over $7 million, according to Morgan Stanley. Google’s TPUs and AMD’s new Helios rack are emerging as rivals.