(Bloomberg) — Nvidia Corp.’s commitments to backstop the artificial intelligence boom seemed to be swelling by the day. There was the reported $250 billion to help kickstart a massive data center for OpenAI in Ohio, the latest in a string of big financings it was involved with.
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While the news heartened AI evangelists, it fueled fresh worries in credit markets that the chipmaker was inflating an AI asset bubble with circular financing — loans to customers that will bring more sales for Nvidia now, but potential pain later if those customers fail. In less than three weeks, a gauge of Nvidia’s credit risk nearly doubled.
On Monday, Nvidia Chief Executive Officer Jensen Huang said he’d enlisted some of the biggest names in finance to reassure investors. The pitch: outside money, sophisticated eyes on deals and Wall Street’s stamp of approval. Nvidia cited a coalition of six major investment firms including BlackRock Inc. and Goldman Sachs Group Inc. that are lining up more than $500 billion to help fund the AI build-out. The group will independently judge individual deals and their own participation level, while Nvidia’s contribution will be relatively limited, and only factor into some deals.
There were early signs of relief. On Tuesday, the cost of protecting Nvidia’s debt against default dropped and the company’s bonds rallied, with risk premiums over Treasuries dropping back to where they were last week.
The commitment from some of Wall Street’s biggest firms “is a positive development to take out some of the uncertainty about both infrastructure build-out and customers’ future spending,” said Brett Kozlowski, portfolio manager at GW&K Investment Management in an interview.
Nvidia is a key player in the $5.5 trillion global race to profit from artificial intelligence. Its powerful computer chips were originally designed for graphics and can perform multiple tasks simultaneously, making the latest generations useful for data centers.
Demand for its chips has helped make Nvidia the most valuable publicly traded company in the world, with its market valuation topping $5.2 trillion. But investors have grown concerned about whether the company’s customers were too reliant on Nvidia’s financial support to pay for chips and data centers that have grown ever-more expensive in recent years.
