Lenders push back on Nvidia's $500-billion chip-collateral financing plan

Summary

• Banks want stronger guarantees before accepting Nvidia chips as loan collateral, Reuters reported.
• Nvidia's August plan with Blackstone, Apollo and KKR envisioned guarantees as low as 25%.
• Credit markets pricing GPUs over 3-4 years, not the decade Nvidia claims.

The latest

Lenders and credit investors are demanding stronger guarantees than Nvidia originally outlined before funding its $500-billion chip-backed financing plan, banking sources and credit managers told Reuters. The dispute centers on how long Nvidia's AI processors keep earning revenue. An Nvidia spokesperson said its AI compute is a durable and fungible asset that can support long-term financing, and that partners assess each deal independently.

Details

• The plan: Nvidia announced the $500-billion initiative in August alongside financiers including Blackstone, Apollo and KKR, Reuters reported. It envisioned using chips as collateral with only limited guarantees, giving AI developers an easier route to Nvidia compute. The company has said some deals could carry no more than a 25% residual value guarantee.
• The pushback: Three banking sources told Reuters that Nvidia may need to offer guarantees on all of its deals, or back them with a revenue stream from investment-grade customers such as a large technology firm, sufficient to cover the debt. Tens of billions of dollars of loans in the pipeline are likely to carry strong guarantees and contracts, one source said.
• The lifespan fight: Chief Executive Jensen Huang has said Nvidia's GPUs have a useful life of up to a decade. Tony Trzcinka, senior portfolio manager at Impax Asset Management, told Reuters banks typically underwrite GPUs on a 3-4 year depreciation schedule, and said Wall Street is far more conservative than Nvidia on the question.
• The ratings view: Andrew Chang, a director at S&P Global Ratings, said Nvidia's implied claim that GPUs work well beyond five years has so far proven true, but added that the agency takes a conservative view of what the chips are worth. He did not put a figure on that valuation.
• Pricing consequences: Trzcinka said investors are likely to seek higher interest rates, bigger financial cushions and stronger repayment protections. That raises the cost of the debt Nvidia's customers would need to buy its processors, the core mechanism the $500-billion program was designed to unlock.
• Nvidia's answer: An Nvidia spokesperson told Reuters that financing partners independently assess each opportunity, weighing customer commitments, expected cash flow and residual value, and that "financing structures will vary as this market develops." The company did not name which pipeline deals are affected or revise its published guarantee terms.
• Precedent deals: CoreWeave, in which Nvidia holds a stake, closed an $8.5-billion facility this year in the first investment-grade GPU-backed loan, rated A3 largely because lenders rely on contractual payments from Meta. Broadcom, helping finance AI capacity for Anthropic, backstopped more than 80% of a $35-billion structure to attract debt investors.
• The credit verdict: Brian Gelfand, co-head of global credit at TCW, which manages more than $200 billion, told Reuters that transactions completed so far suggest the creditor community does not subscribe to long average lives for these assets.

Background

Huang wrote in an August blog post that the $500-billion initiative was designed to answer concerns about circular financing, the practice of a company helping to fund purchases of its own products. He has said he aims to turn Nvidia compute into an investable infrastructure asset.

Between the lines

Both completed benchmarks leaned on something other than the chips. CoreWeave's A3 rating rested on Meta's contractual payments; Broadcom backstopped more than 80% of its own structure. Credit markets will fund AI capacity, but so far on a counterparty's balance sheet rather than the hardware's residual value — the opposite of what Nvidia's limited-guarantee model assumes.

What's next

Watch the terms of the pipeline deals Reuters reported as worth tens of billions of dollars: whether they close with blanket Nvidia guarantees, investment-grade customer revenue backing, or the originally outlined 25% residual value cap.

Source: Reuters