Morgan Stanley Assigns First 'Neutral' Credit Rating to Nvidia as AI Financing Expansion Brings New Credit Risks

TradingKey - Morgan Stanley recently initiated credit research coverage on Nvidia (NVDA) with a "Neutral" rating. To be clear, this is not a downgrade of Nvidia's stock investment rating, but rather an assessment of the company's debt and overall credit profile. Morgan Stanley believes Nvidia itself still possesses an exceptionally strong balance sheet, but as the company increasingly leverages its financial strength to aid AI industry expansion, certain potential risks that were less apparent in the past are mounting.

Morgan Stanley analyst Lindsay Tyler noted that Nvidia's rapid growth is turning its robust balance sheet into an "AI financing vehicle." While Nvidia's business model in the past was primarily selling GPUs to cloud computing companies and AI firms, the company has now begun to participate more deeply in customer data center financing, providing capital and credit support for the entire AI ecosystem.

Nvidia announced this month partnerships with institutions including Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR, aiming to bring in over $500 billion in third-party capital for AI infrastructure construction. Nvidia may provide up to a 25% value guarantee for certain projects to help customers secure financing.

Morgan Stanley believes that this model can further stimulate AI data center construction and ultimately drive more sales of Nvidia GPUs, but it also means the potential risks Nvidia assumes can no longer be measured purely by traditional debt metrics. Some risks may exist in the form of guarantees, contractual commitments, and other structures, and thus will not be fully reflected in the company's direct debt balance.

According to Morgan Stanley's estimates, Nvidia's overall credit risk exposure could reach approximately $200 billion by the end of 2028, with about $170 billion stemming from related adjustments and potential obligations. Meanwhile, the scale of financing built around GPUs and XPUs could exceed $1 trillion, which is the main reason Morgan Stanley remains cautious at present.

However, Morgan Stanley does not view Nvidia's financial position as showing clear signs of trouble. Even factoring in these potential risks, the company's overall leverage remains low, backed by very robust cash flows. S&P Global Ratings also recently reaffirmed Nvidia's AA credit rating with a stable outlook, projecting the company to generate over $800 billion in cumulative free operating cash flow from fiscal years 2027 to 2029. As of April 26, after taking into account $25 billion in debt financing in June, Nvidia held approximately $106 billion in cash and marketable securities against about $33.5 billion in interest-bearing debt.

For investors, as Nvidia shifts from a pure-play AI chip supplier to a participant in AI infrastructure investment and financing, the company can help customers purchase more GPUs through financial support. At the same time, however, its own ties to AI customers, data center projects, and the broader AI capital expenditure cycle become even tighter. In the future, when assessing Nvidia, alongside GPU sales, AI revenue growth, and gross margins, the market may also increasingly monitor AI financing scale, guarantee risks, and customer debt-servicing capabilities as new key metrics.