Nvidia’s shares dropped nearly 5% on July 27 following news of a staggering $250 billion backstop deal aimed at supporting OpenAI’s ambitious 10-gigawatt AI data center in Pike County, Ohio. The financing would cover lease and construction expenses rather than the semiconductor chips themselves, highlighting the massive capital flowing into AI infrastructure.
Though Nvidia has remained tight-lipped on the discussions, the Wall Street Journal broke the story, with CNBC confirming the talks the very next day. This revelation rattled investors, sparking concerns over the financial burden Nvidia might shoulder to sustain one of its biggest customers amid an already volatile tech market.
The selloff in Nvidia’s stock spilled over into other semiconductor companies, dragging down the sector. Meanwhile, bond markets reacted sharply as the cost of insuring Nvidia’s debt against default surged, marking the largest increase on record according to Bloomberg. This shows lenders are treating the risk seriously as this circular financing arrangement raises red flags.
Financial experts warn this structure where a chip maker finances the buildout of its client’s facilities mirrors the dangers seen during the dot-com bubble. Jim Cramer referred to this on CNBC’s "Mad Money," likening it to a replay of risky financial loops that could jeopardize the hardware supplier if OpenAI faces funding troubles.
