Nvidia Corp. is working on a new round of AI infrastructure deals that could be worth more than $750 billion. The latest deals are adding to Nvidia’s aggressive AI investment strategy and are raising concerns that the company may be helping create an AI bubble. Critics say Nvidia’s financing model could be artificially increasing demand for AI chips and pushing company valuations higher than they should be.
Nvidia announced a new AI partnership with SK Group, the parent company of South Korean memory chipmaker SK Hynix. Nvidia said this agreement with SK Group is worth more than $500 billion. Nvidia is also discussing another major deal with OpenAI, according to people familiar with the matter, Bloomberg reported.
OpenAI deal and AI funding
Under the discussions, Nvidia could guarantee up to $250 billion to help OpenAI lease computing power from a massive US data centre project. Nvidia is also discussing financing $350 billion worth of OpenAI’s purchases of Nvidia chips for that US project, according to a person familiar with the matter. If completed, this would become one of Nvidia’s largest financing deals with a customer.
What is circular financing?
Critics have warned for months that Nvidia’s investments are creating “circular financing”. Circular financing means Nvidia invests in or finances companies, and those same companies then spend the money buying Nvidia’s AI chips or services. Experts say this structure could create wrong business incentives, encourage risky spending and increase losses if AI demand slows.
“While Nvidia’s investments and partnerships reinforce confidence in long-term AI buildouts, investors remain concerned about circular financing,” said Gary Tan, portfolio manager at Allspring Global Investments, according to Bloomberg. “Capital is increasingly being used to fund future AI customers and infrastructure deployments,” Tan added.
Also read: OpenAI AI agent hacked Hugging Face, went undetected for days: Report
Nvidia is not the only company using this approach. Google recently agreed to support lease payments for five data centre sites used by AI startup Anthropic, helping it secure a $35 billion loan. Another concern is the rising debt among AI companies as they borrow heavily to build data centres and buy expensive AI chips.
OpenAI talks still ongoing
Bloomberg reported that the proposed OpenAI deal involves a $500 billion AI hub being developed in Ohio. Discussions between Nvidia and OpenAI are still in the early stages, according to people familiar with the matter.
The people said the talks could still collapse or the financing terms could change. “Nvidia guaranteeing more of OpenAI’s data center debt deepens vendor financing that’s already under scrutiny,” said Billy Leung, investment strategist at Global X Management. “It’s as much a reminder of funding strain in the AI buildout as it is a demand signal,” Leung added, according to the report by Bloomberg.
Nvidia’s closer relationship with SK Group will also improve its access to high-bandwidth memory (HBM) chips, according to Bloomberg. Jensen Huang said the $500 billion-plus value of the SK Group deal includes Nvidia buying memory chips from SK Group as well as SK Group purchasing Nvidia’s AI supercomputers. “So between us, we’re going to do half a trillion dollars’ worth of business,” Huang said in the interview, as noted by Bloomberg.
Jensen Huang defends strategy
Jensen Huang has said Nvidia’s investments in companies such as OpenAI and Anthropic are meant to generate returns as well as strengthen the AI ecosystem. Nvidia has also invested in AI infrastructure companies including IREN Ltd., CoreWeave Inc. and Nebius Group NV. Nvidia has announced more than $540 billion worth of similar AI-related deals this year alone, excluding the proposed OpenAI agreement.
Huang has rejected claims that Nvidia’s financing model creates circular demand. “It’s a small percentage of the amount of money that they ultimately have to go raise,” Huang said while discussing Nvidia’s investment in CoreWeave in January. “The idea that it is circular is — it’s ridiculous,” Huang added, according to Bloomberg.