Nvidia Accused of 'Circular Financing' in $750 Billion AI Deals

Nvidia is facing allegations of 'circular financing' in its massive $750 billion deal with SK Group and OpenAI. The company's business model involves investing in AI companies, which then use Nvidia's GPUs to build data centers, creating a loop where funds flow from Nvidia back into the company.

The term 'revolving financing' typically refers to a loan agreement allowing borrowers to draw down, repay, and reuse funds within specified terms. However, in the context of Nvidia's AI investment boom, it describes a model where AI companies funded by Nvidia become major customers of its GPU chips, channelling funds back into the company.

Nvidia's transactions with SK Group and OpenAI are valued at over $500 billion and $250 billion respectively. The company is also investing in Hut 8, a Bitcoin miner, to build a 1.2 GW data center park in Texas, worth around $50 billion. Nvidia has previously invested in CoreWeave, IREN, Nebius, Marvell, and SSI.

Analysts believe the core condition for this model to hold is that AI business revenue growth outpaces debt expansion. However, if earnings growth fails to keep pace with debt, risks will be unleashed in a concentrated manner. Nvidia CEO Jensen Huang has denied allegations of 'circular financing', calling them 'simply ridiculous'. But market concerns about the vulnerability of this model under a demand-slowdown scenario persist.