Nvidia's strategy of using its investment grade credit rating to finance AI infrastructure is facing its first major stress test as credit markets tighten for key partners. The company has transitioned from selling chips to providing backstop guarantees and equity stakes to fund the global AI buildout, a shift that now appears vulnerable to market volatility.
According to Nvidia's last quarterly financial filing in July, the company held $36 billion in off-balance-sheet AI cloud agreements for neoclouds. This figure excludes a separate guarantee for up to $105 billion in chips, land, and power for a proposed 10 gigawatt OpenAI data center in Ohio. Nvidia also signed as a tenant for $20 billion in future data center leases intended for assignment to third parties. For the majority of these deals, Nvidia is only liable if project participants default.
Market conditions are currently testing these arrangements. Shares of Nvidia-backed neoclouds CoreWeave, Nebius, and IREN have fallen at least 30% this month. CoreWeave, the largest of the group, has seen its credit default swap spread soar past 11%, indicating rising costs for default insurance. Other Nvidia portfolio companies have also faced hurdles; Australian provider Firmus withdrew its IPO plans this month, while Nscale and SB Energy have not provided updates on their U.S. public filings since September.
Nvidia CEO Jensen Huang maintains that demand for neoclouds is "off the charts," attributing current challenges to a scarcity of working capital rather than weak demand. In an interview with CNBC, Huang stated that the lack of capital is preventing growth despite strong sector interest. However, Nvidia shares closed a third consecutive down week on Friday, dropping 7.6% in October and tracking toward its worst month since November of last year.
The scale of Nvidia's financial exposure is significant. New Constructs research estimates the net present value of Nvidia's off-balance-sheet liabilities in fiscal 2026 at over $153 billion, an increase of more than $100 billion from the previous year. Moody's Ratings notes that guarantees are the fastest-growing type of off-balance-sheet financing arrangement in 2026. David Gonzales, a vice president at Moody's, said the agency is constantly monitoring these structures because they are unique and advanced.
Nvidia is actively seeking insurers to share the risk associated with potential GPU value loss. Tom Hoad, executive director of product innovation at Howden, said insurers are likely to be helpful in specific commercial situations but are not yet a complete solution. Meanwhile, Nvidia continues to foster large-scale deals, including a guarantee for OpenAI's facility in Pike County, Ohio, which requires the use of Nvidia hardware for at least 20 years.
The chipmaker's financial strength remains a distinct advantage over competitors like Advanced Micro Devices and Alphabet. Nvidia generated $70 billion in free cash flow in the first half of this year, compared to just over $4 billion for AMD. Alphabet went cash flow negative in the second quarter to fund its own buildout. Gene Munster, founder of Deepwater Asset Management, told CNBC that Nvidia's projected revenue affords it the ability to finance customers.
Warren Hosseinion, co-founder of Compute Labs, observed that Nvidia is willing to play the role of insurer while the market catches up. He noted that Nvidia controls the pace of technology release, which dictates how the market moves around it. As Nvidia waits for Wall Street firms to expand the GPU loan pool through a $500 billion financing push announced in August, its credit backstops remain central to its ecosystem strategy.