Nvidia's stock has dropped as CEO Jensen Huang faces scrutiny from the FBI, Congress and the company's board. A rerun of the 2007-2008 crisis is not likely, analysts say, but its web of AI financing raises the stakes for banks and credit markets.
Nvidia's stock fell 30% from its Oct. 6 peak through Tuesday's close, amid a broader reassessment of the AI trade after Democrats' victory in the Nov. 3 midterms. It recovered Wednesday, rising more than 4% as of midday.
Huang is under scrutiny by the FBI, Congress and Nvidia's board over his relationship with a woman the New York Times reported was suspected of spying for China. Nvidia's board has expressed confidence in its CEO.
Hundreds of billions in commitments
Nvidia has made hundreds of billions of dollars in financial commitments to other firms, earning it the nickname the "central bank of AI." Among them, Nvidia disclosed in July that it has committed to buy up to $36 billion in cloud services from neoclouds, the smaller AI companies that build data centers with its chips.
The company also has a $105 billion phased guarantee to a data center project in Ohio planned by OpenAI and SB Energy, subject to certain conditions. In addition, it promised to backstop up to $125 billion of a $500 billion credit program by Wall Street financial firms.
Neoclouds show strain
Many neoclouds have been under stress in recent weeks. The cost of insuring CoreWeave debt rose by 94% from Oct. 1 to Nov. 5, according to LSEG data, and an IREN convertible bond maturing in 2029 fell 23% from Nov. 3 to Nov. 5.
The Federal Reserve and other financial institutions are closely watching the AI buildout for an unexpected event that could destabilize the global financial system. If the value of Nvidia's GPU chips fell, investors could question whether companies that borrowed to buy them can repay their debts.
Why analysts see a cushion
A rerun of the 2007-2008 financial crisis isn't likely, according to analysts and current and former financial officials. According to former FDIC chief Sheila Bair, Nvidia is not "too big to fail in a bank sense at all", though regulators need to watch bank exposure.
Columbia Business School finance professor Stijn Van Nieuwerburgh estimates the obligations at $400 billion overall. CNBC reports the obligations are unlikely to come due all at once, if ever. The sum is a small fraction of Nvidia's $4 trillion market capitalization after its stock decline.
Source: CNBC
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