Nvidia Considers Loan Guarantee for OpenAI: A Potential Billion-Dollar Gamble

TradingKey - The Wall Street Journal reports that Nvidia is currently in discussions to partially guarantee loans for OpenAI's data center construction. This move could potentially expose Nvidia to significant debt risk. Ahead of Tuesday's US stock market opening, Nvidia (NVDA) experienced slight fluctuations.

The Wall Street Journal highlighted that an agreement has been reached where OpenAI will lease, rather than purchase, Nvidia's chips to mitigate upfront capital expenditure.

Under the terms of the agreement, OpenAI will lease up to 5 million Nvidia chips, valued at $350 billion. Both parties have engaged in talks about Nvidia guaranteeing part of OpenAI's loans, which will be used to build OpenAI's own data centers.

Last month, Nvidia and OpenAI announced a partnership. According to the agreement at the time, OpenAI plans to build and deploy at least 10 gigawatts (GW) of AI data centers using millions of Nvidia GPUs to construct next-generation AI infrastructure. In return, Nvidia would invest up to $100 billion in the deployment of these new systems.

Analysts suggest that the change in their collaboration model signifies a shift away from a simple supplier-purchaser relationship, reinforcing the computational power bond between the two giants and further cementing Nvidia's leadership in the AI infrastructure sector. The loan guarantee provided by Nvidia is expected to help OpenAI reduce financing costs for its data center construction.

However, if OpenAI fails to meet its spending commitments, Nvidia might face billions of dollars in debt obligations.

Previously, OpenAI entered a five-year, $300 billion cloud computing agreement with Oracle, signed contracts worth up to $22.4 billion with AI cloud company CoreWeave, and entered multi-billion dollar supply agreements with chip designer Broadcom. These agreements impose obligations on OpenAI’s performance capabilities. Should OpenAI fail to fulfill these commitments, its financial stability and cash flow could suffer, potentially implicating Nvidia due to its loan guarantees.