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Nvidia's emergence as financier for the global AI buildout is facing its first major stress test as credit markets tighten for key partners.
After creating the chips that powered the early stages of the generative artificial intelligence era, Nvidia turned to using its financial prowess to fund AI model developers, data center companies and a host of so-called neoclouds. CEO Jensen Huang's strategy has been to not only build the most advanced technology but to provide customers with investment as well as help them take out loans so his systems can reach many more hands.
That's meant taking full advantage of Nvidia's investment grade credit rating and providing backstop guarantees on mega-projects for OpenAI so that buildouts can get funded at lower interest rates.
As of its last quarterly financial filing in July, Nvidia had $36 billion in off-balance-sheet AI cloud agreements, or backstops, for neoclouds, in addition to its guarantee on up to $105 billion for chips, land and power at a proposed 10 gigawatt OpenAI data center in Ohio. The company signed as a tenant for $20 billion in future data center leases, which will later be assigned to third parties.
For the vast majority of these deals, Nvidia won't have to pay up unless participants in the project default.
"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 financial research firm New Constructs, in an interview.
Nvidia declined to comment for this story.
Market conditions may soon test Nvidia's mettle. Shares of neoclouds CoreWeave , Nebius and IREN , all cash-burning companies in Nvidia's portfolio, are down at least 30% this month. CoreWeave, the biggest of the group, has seen the spread on its credit default swaps soar past 11%, as investors are forced to pay up for insurance against default.
Nvidia has backed other neoclouds that have run into challenges.
The company is an investor in Australian AI cloud provider Firmus, which abruptly withdrew its IPO plans this month, as well as Nscale out of the U.K. and SoftBank-backed SB Energy . Both of those companies filed to go public in the U.S. in September but haven't provided updates on their plans in weeks.
Nvidia wrapped up a third straight down week on Wall Street on Friday, with its stock now off 7.6% in October, on pace for its worst month since November of last year.
Huang reiterated his confidence in the market this week, telling CNBC on Thursday that demand for neoclouds is "off the charts."
"What is missing in the middle is the working capital to fuel that growth," Huang told CNBC's Arjun Kharpal on the sidelines of the company's GTC conference in Berlin. "Because there's just so much demand across so many sectors of AI, there's a scarcity of capital."
Nvidia has taken equity stakes in dozens of companies, including big investments in OpenAI and Anthropic. Its portfolio is worth $99 billion as of the second quarter.
Investors told CNBC that a big question surrounding Nvidia is how the company can use its cash and $5 trillion market cap to get more chips into customers' hands, and how much risk it will assume…