Nvidia OpenAI backstop draws Cramer warning over AI financing
Jim Cramer said a reported $250 billion Nvidia backstop for OpenAI evokes dot-com-era supplier financing risks as Nvidia shares fell.
By Amanda Ross · Deals Correspondent
· 3 min read
A potential Nvidia OpenAI backstop of as much as $250 billion has sharpened scrutiny of how the artificial intelligence build-out is being financed. CNBC’s Jim Cramer said Monday that reports of Nvidia helping support OpenAI’s data center borrowing recalled practices seen before the dot-com collapse, while Nvidia shares fell more than 4% and weighed on other semiconductor stocks.
The Wall Street Journal reported Sunday that Nvidia was in talks to provide a guarantee for OpenAI tied to a planned 10-gigawatt AI data center campus in Ohio. CNBC said Monday it had confirmed the discussions. Nvidia declined to comment, according to CNBC.
CNBC reported that the proposed guarantee would back lease and construction debt for the project, rather than the Nvidia chips that would be used inside the facility. Cramer, host of “Mad Money,” said investors should pay close attention when a supplier supports financing for customers that also buy its products.
What is the Nvidia OpenAI backstop?
A backstop is a financial support arrangement that can give lenders or lessors more confidence that a borrower’s obligations will be met. In this case, CNBC reported that the discussed Nvidia guarantee would help support debt connected to OpenAI’s planned Ohio data center project, rather than directly funding chip purchases.
Cramer compared the arrangement to late-1990s telecom equipment financing, when suppliers helped customers pay for large purchases. He said those structures boosted sales before many customers came under pressure and failed to pay, leaving suppliers and investors exposed.
“What we learned in 2000 is that you don’t lend to companies who buy your goods,” Cramer said, according to CNBC.
Cramer said he still regards Nvidia as a strong company and was not forecasting another dot-com crash. His concern, as described on CNBC, is that confidence can deteriorate when large customer spending plans depend heavily on continued access to financing.
He said Nvidia would be well placed if OpenAI can pay for the chips it uses, including if OpenAI goes public. If the buyer cannot pay, he said, the situation changes.
Why investors are watching AI circular financing
The reported backstop adds to concerns about circular financing in the AI sector, where companies that sell computing infrastructure also invest in or support customers that need large amounts of that infrastructure. CNBC reported that Nvidia has made investments in companies that are also significant chip customers, including a $30 billion investment in OpenAI in March and a $10 billion investment in Anthropic last year.
CNBC also reported that Nvidia has backed neocloud providers, which rent Nvidia-powered computing capacity to customers. Nvidia has said such investments help expand the AI ecosystem and can produce attractive long-term returns, according to CNBC.
OpenAI confidentially filed for an initial public offering in June, CNBC reported, though it has not announced when it plans to list. Private investors valued the company at more than $800 billion in March, according to CNBC, as it expands computing capacity for its AI models and competes with companies including Alphabet and Meta.
Cramer said the risk extends beyond Nvidia because more companies now rely on data center demand for earnings. If markets stop funding additional data centers, he said, and companies lack their own cash or are not paid, the situation would resemble the stresses seen in 2000.
He added that Nvidia’s financial strength does not remove the historical concern around supplier guarantees. “Nvidia shouldn’t make these guarantees even if it has all the money in the world,” Cramer said, according to CNBC.
This story draws on original reporting from CNBC.
