Nvidia's strategy of financing the global AI buildout is facing its first major test as credit markets tighten for key partners. The company, known for its advanced AI chips, has expanded its role by providing investment and loan assistance to AI model developers, data center companies, and so-called neoclouds. CEO Jensen Huang's approach involves leveraging Nvidia's investment-grade credit rating to backstop mega-projects, such as a proposed 10 gigawatt OpenAI data center in Ohio, with guarantees on up to $105 billion for chips, land, and power.
Market conditions are now testing Nvidia's financial mettle. Shares of neoclouds CoreWeave, Nebius, and IREN, all part of Nvidia's portfolio, have dropped at least 30% this month. CoreWeave, the largest of the group, has seen the spread on its credit default swaps soar past 11%, indicating rising concerns about default risks. Nvidia has also faced challenges with other neoclouds, including Firmus, which withdrew its IPO plans, and Nscale and SB Energy, which have not provided updates on their public listing plans in weeks.
Despite these challenges, Jensen Huang remains confident in the market. He told CNBC that demand for neoclouds is 'off the charts' and that the primary issue is the scarcity of capital to fuel growth. Nvidia has taken equity stakes in dozens of companies, including significant investments in OpenAI and Anthropic, with a portfolio worth $99 billion as of the second quarter. The company's latest financial filing outlined over $500 billion in off-balance-sheet commitments, with a majority maturing through fiscal 2029.
Nvidia's biggest single guarantee is for OpenAI's forthcoming facility in Ohio, which could be the largest data center in the world. The deal requires the use of Nvidia hardware for at least 20 years and carries significant risks should OpenAI run into trouble. If OpenAI misses payments or faces insolvency, Nvidia can take over the lease, find a new tenant, or ask the landlord to sell the facility, guaranteeing to pay the difference up to $105 billion if the sale falls below a minimum price.