Cloudmaxxing sucks Nvidia into dangerous game

Nvidia is in talks to provide roughly $250 billion in financing guarantees for OpenAI as part of a massive data center project, the Wall Street Journal reported on July 26, citing unnamed sources. The backstop would help the ChatGPT developer lease a 10-gigawatt project that SoftBank's subsidiary SB Energy is developing in southern Ohio, according to the report. The guarantee would cover the data center lease and debt financing, but not the Nvidia chips inside, the newspaper reported, adding that the chipmaker was also discussing financing OpenAI's chip purchases, worth up to $350 billion. The first phase of the project is expected to be finished in 2028, with around 800 megawatts of power. The buildout is straining all participants. Free cash flow at Meta and Microsoft is on track to deteriorate sharply through 2027, according to estimates compiled by LSEG, with Oracle ORCL.N and Alphabet already having turned negative in the most recent quarter reported. Morgan Stanley analysts estimate investment from hyperscalers will reach some $875 billion this year. Credit investors are becoming warier, with buyers of debt for Meta-backed data centers demanding higher yields, the Financial Times reported. Returns also remain uncertain. Cloud-related revenue is booming, but there's limited evidence AI spending will produce commensurate profit beyond the server providers. Nvidia argues that each new chip generation improves the economics by producing more tokens per watt and a lower cost per token. If more efficient chips and Chinese open-source models mean competitive performance requires less power and capital, however, today's heroic investments may look excessive before they're finished. In fiscal 2026, Nvidia generated around $100 billion of operating cash flow on nearly $220 billion of revenue, so it can probably afford to help its customers. Its latest annual report, however, warns that future financing arrangements may reduce upfront cash flow and increase credit risk. There's reason for caution. Nvidia's share price tumbled 4% on Monday after news about the potential financial backstop, in contrast to a 4% jump about a year ago, when Nvidia boss Jensen Huang unveiled an OpenAI partnership. He has created a significant edge by selling picks and shovels to the AI gold rush. Standing behind those eager to mine wider and deeper is a far riskier proposition. NEW YORK, July 27 (Reuters Breakingviews) - New technology is discovering an old-fashioned bottleneck: credit. Fat cash flows from Microsoft MSFT.O, Alphabet GOOGL.O, Amazon.com AMZN.O and Meta Platforms META.O paid for the first few years of the artificial intelligence frenzy. Rapid growth makes the next step harder. Unprofitable model developers, including OpenAI and Anthropic, are seeking help from deep-pocketed supporters, which adds complexity and concerns. Nvidia NVDA.O is in talks to guarantee up to $250 billion of financing for a 10-gigawatt data-center project involving SoftBank's SB Energy, the Wall Street Journal reported on Sunday. OpenAI may become the tenant. The chipmaker would backstop the lease and construction debt, while separately considering financing as much as $350 billion more for GPUs on the site. OpenAI, the ChatGPT developer, lacks an investment-grade credit rating. Nvidia's balance sheet could therefore reduce the perceived risk for lenders and lower the cost of capital for SoftBank and OpenAI. It is not writing the check itself, but deploying funding strength from the AI boom to roll out more computing power.

Cloudmaxxing sucks Nvidia into dangerous game

Context: WSJ report on the proposed guarantee

AI spending is straining cash flow and returns

Nvidia can afford it, but investors are cautious

Nvidia and OpenAI financing raises new credit risks

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