Nvidia Lines Up $105 Billion For OpenAI. Here's What it Means For Investors.

Nvidia (NASDAQ:NVDA) said on Monday that it will back as much as $105 billion in financing for a massive OpenAI data center campus in Ohio. The chipmaker will also invest $1.5 billion into SB Energy, the SoftBank unit developing the site.

In return, OpenAI committed to exclusively using Nvidia chips onsite.

OpenAI's 8-gigawatt data center is massive

OpenAI will lease the site for 20 years, which will eventually grow to provide 8 gigawatts (GW) of compute -- a massive target. That's more than enough energy to power New York City on a typical day. It's also an expensive target; each GW typically costs something like $50 to $60 billion.

The power won't come online all at once, however. The project is planned in phases: roughly 0.8 GW in 2028, growing to 4.25 GW, then the full 8 GW.

How Nvidia's $105 billion guarantee actually works

The $105 billion backstop is not a direct investment, but a guarantee. It means that, in the event OpenAI can't pay its bills, Nvidia will step in to cover any unpaid lease and power obligations. Nvidia owes nothing unless a default actually happens, and the absolute limit the company would be on the hook for is the headline number of $105 billion.

But the promise alone helps OpenAI secure key funding it needs to build the site. And though there's no cost to Nvidia upfront, it's expected to lead to serious revenue. The company expects the first 4.25 GWs alone to bring in about $200 billion in chip sales.

Nvidia is doubling down on AI infrastructure financing

The announcement comes at a complicated time for Nvidia and the AI industry. Many investors are nervous about the increasingly tangled ecosystem of financing between Nvidia and its top customers. Just last week, the company said it's teaming up with BlackRock, Apollo, Blackstone, and others to raise more than $500 billion for AI infrastructure, offering to backstop up to $125 billion of it.

Why investors should watch this deal closely

If OpenAI pays its bills, Nvidia books 100s of billions in revenue and never has to write a check. That could be a pretty great deal.

The problem is that there's a real chance OpenAI runs out of money. The ChatGPT creator is on the hook for something like $750 billion over the next 4 years. This is a company that, while growing sales at lightning speed, is losing money just as fast. It's unclear how it expects to pay for all that it has committed to unless something changes.

If OpenAI does stumble, it could have serious consequences for Nvidia. Even without these backstops, Nvidia's top-line is heavily reliant on OpenAI. Most of the companies that purchase Nvidia's most advanced chips are either directly or indirectly reliant on OpenAI.

If that happens, Nvidia would be on the hook for a data center in Ohio at the exact moment its biggest customer's orders dry up.

Of course, there's no guarantee that's what will happen. OpenAI could very well meet its obligations, and Nvidia will be the richer for it. Still, it's a risk you should take into account.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.