Nvidiaannouncedthis week that Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR were willing to commit up to $500 billion to build AI data centers. That eye-popping figure got a lot of the attention, but the bigger story is Nvidia’s effort to create a secondary market for aging GPUs.
To convince those big-name financial companies, Nvidia has agreed to guarantee, with its own money, that its chips used as collateral in these deals will retain their value.
Many have now commented on howunusual,smart, anddangerousthis plan is. It is all of those things. The bond marketsgot so spookedthat Nvidia CEO Jensen Huangtook to Xandbusiness TVto better explain how Nvidia’s risk would be limited.
But underneath the financial maneuvering to fund AI data centers (and keep revenue for Nvidia flowing), is something, perhaps, far more interesting for startups and enterprises: Huang wants to ensure an ecosystem of used AI hardware flourishes, helping sustain demand for Nvidia hardware as it ages.
Specifically, Nvidia is promising that if GPUs used as collateral don’t retain their value as expected, the company will cover up to 25% of the difference. So, if a data center owner defaults on a loan and the lender must liquidate, but the chips can’t command the price the books say they should, Nvidia will chip in.
The dangerous part for Nvidia is that this creates something financiers call “wrong way” risk. That is, Nvidia’s obligations will grow as demand weakens. Should that happen, its revenues will likely be squeezed as well.
Still, the scheme is deliberatelyunlike the comparison to Lucent Technologiesthat some have been making. Lucent was the telecommunications equipment provider that rose and crashed with the dotcom bubble after lending its customers money to buy its wares.
The Lucent comparison is a shadow over Nvidia, Huang knows. And not an unfair one. Nvidia definitely has committed billions towards those who buy its chips, including frontier AI labs OpenAI and Anthropic, neoclouds like CoreWeave (the originator of using Nvidia chips as collateral) as well as Nebius, Firmus, and Lambda. And it has been working on another$750 billion worth of circular dealsthis summer, Bloomberg has calculated.
“Is this circular financing?” Huang wrote on X about the new scheme. “This initiative is designed to address that concern. We are bringing independent, long-term institutional capital into the AI infrastructure market.”
That’s true. Unlike Lucent, Nvidia is getting others to shoulder the bulk of the capital and risk, merely by agreeing to protect a portion of its chips’ value in the future.
Should this plan work, Nvidia will have found new sources of money for AI data center builds, after many of the traditional methods have begun to wear thin. For instance, some of the hyperscalers have already taken on a lot of debt (likeOracle), issued new tranchesof equity (Google), and burnedmuch cash (Meta).
The situation has become so dicey that Microsoft CEO Satya Nadella recently recommended the book“1873”during his latest earnings call. It’s about the railroad-era financial engineering that crashed the nation’s economy.