Nvidia Drops Nearly 5%, Dragging Down Chip Stocks as 'Circular Financing' Concerns Resurface

According to Yahoo Finance, Nvidia (NVDA-US) shares plunged nearly 5% on Monday (27th), dragging down the entire semiconductor sector. As Nvidia's stock retreated, Apple (AAPL-US) surpassed it once again to reclaim its position as the world's most valuable publicly traded company.

Other chipmakers also weakened. AMD (AMD-US) fell over 5% on Monday, while memory manufacturers posted steep declines—Micron (MU-US) dropped more than 2%, and SK Hynix (SKHY-US) plunged over 7%.

Reports indicate that Nvidia is in talks to provide up to $250 billion in financial backing for OpenAI, helping the AI firm lease computing power tied to U.S. data center projects. This news has reignited market concerns over 'circular financing,' where suppliers also act as major investors in their own customers, creating a loop of funding and transactions.

As Bloomberg reported, if the guarantee materializes, it would be one of the largest financing guarantees in Nvidia's history.

Additionally, the AI chipmaker announced a strategic partnership with SK Group last Friday. SK Group is the parent company of SK Hynix, and the two will jointly pursue a project exceeding $500 billion, covering AI factories and next-generation memory technologies.

Meanwhile, market concerns that China may be gaining ground in the AI race are also weighing on the sector. The Information reported that a Chinese state-backed firm has begun mass-producing a key piece of equipment used in chip manufacturing, triggering a sell-off in ASML (ASML-US) shares.

Market worries about 'circular investment' between chipmakers and the AI developers who buy their equipment are deepening investor skepticism around AI demand, AI company valuations, and debt risks.

Bloomberg noted that on Monday, the cost of insuring against Nvidia's debt defaulting within the next five years saw its largest single-day jump on record—further fueling concerns that the company may be taking on increasingly large financial commitments.

Investor sentiment toward AI infrastructure spending is growing more cautious, with increasing questions about whether these massive investments will yield tangible returns.

Alphabet (GOOGL-US) last week announced it would raise its capital expenditure forecast due to ongoing AI infrastructure expansion. The stock sharply declined following the announcement.

Investors are now awaiting earnings reports from Microsoft (MSFT-US), Amazon (AMZN-US), and Meta (META-US) this week. The market widely expects these companies to announce further increases in AI-related spending. However, any indication that they are slowing down AI investment could spell trouble for semiconductor and related equipment manufacturers.