Is Nvidia too big to fail? Its AI financing web raises the stakes
Nvidia has built hundreds of billions of dollars in AI financing commitments, and analysts say trouble at the chipmaker could spread well beyond tech stocks.
What happened
A CNBC analysis published on Wednesday asks whether trouble at Nvidia could spread through the financial system. The chipmaker, known as the central bank of AI for the hundreds of billions of dollars in financing commitments it has made to other firms, has a market value of $4 trillion even after its stock fell 30% from its October 6 peak through Tuesday's close.
The stock recovered on Wednesday, rising more than 4% by midday. The rebound came as CoreWeave, one of the cloud providers Nvidia backs, reported strong results and said it would avoid tapping unsecured debt markets, easing fears about AI financing.
- Nvidia market value$4 trillion
- Total AI financing obligationsabout $400 billion
- Cloud services to buy from neocloudsup to $36 billion
- Ohio data-center backstop$105 billion, phased
- Credit program backstopup to $125 billion of $500 billion
The financing web
Columbia finance professor Stijn Van Nieuwerburgh estimates Nvidia's total obligations at about $400 billion. The company disclosed in July that it has committed to buy up to $36 billion in cloud services from smaller providers known as neoclouds, which build data centers with Nvidia chips and lease capacity to other firms.
The list also includes a $105 billion phased backstop for a data-center project in Ohio planned by OpenAI and SB Energy, and a promise to backstop up to $125 billion of a $500 billion credit program arranged by Wall Street firms. The obligations come in different forms and are unlikely to come due all at once, if ever, according to the analysis.
Why it matters beyond tech
Hyperscalers grew from 1% to 10% of bond issuance in the $15 trillion investment-grade debt market in just two years, according to the analysis. Credit stress has already shown up in the AI ecosystem: the cost of insuring CoreWeave debt, measured by credit-default spreads, rose 94% from October 1 to November 5, before settling.
An IREN convertible bond maturing in 2029 fell 23% from November 3 to November 5, while IREN shares fell 26% over the same days. Jason Wu of the International Monetary Fund warned that the economy and financial markets are standing on the same leg, so a drawdown could have reinforcing effects between the two.
What to watch
Former FDIC chair Sheila Bair said Nvidia is not too big to fail in a bank sense, but added that its failure would be a seismic event and that regulators need to watch exposure in banks and the wider system. A rerun of the 2007-2008 financial crisis is not considered likely by the analysts and officials quoted, but the Federal Reserve and other financial institutions are watching the AI buildout closely.
Nvidia reports earnings on Tuesday, and analysts expect revenue to more than double in the current fiscal year, then roughly double again over the following two years, according to LSEG data. This post summarizes reported facts and our view of the risks involved. It is not a forecast and not investment advice.
