NVIDIA's $750 Billion AI Bet Shakes Bond Market! Credit Risk Indicator Surges to Record High

Markets report that NVIDIA (NVDA-US) is currently in talks regarding artificial intelligence (AI) infrastructure deals totaling over $750 billion. This has raised investor concerns that the chip giant may be taking on greater financial obligations, causing its credit default swap (CDS) prices to surge on Monday (27th), marking the largest single-day increase since active trading began.

According to ICE Data Services data, the cost of 5-year default protection on NVIDIA's debt rose by approximately 0.14 percentage points during Monday's trading session, peaking at around 0.82% annually. This represents the largest intraday gain since these contracts began active trading in November last year.

Credit default swaps can be viewed as insurance against corporate debt default, and rising prices typically indicate that the market perceives an increased credit risk for the issuing company. The sharp rise in NVIDIA's CDS reflects investors beginning to assess the potential strain on the company's balance sheet from aggressively supporting AI customers and data center construction.

Sources indicate that NVIDIA is discussing providing up to $250 billion in guarantees to OpenAI, helping the ChatGPT developer lease computing resources for a U.S. data center project. If completed, this would become one of the largest customer financing arrangements in NVIDIA's history.

NVIDIA also announced last Friday that its AI development initiative with SK Group, the parent company of South Korean memory chip manufacturer SK Hynix (SKHY-US), exceeds $500 billion in value. Combined, these two potential collaborations exceed $750 billion, further intensifying market concerns about circular financing and debt risks within the AI industry.

The core concern is that after NVIDIA invests in or guarantees its customers, those companies use the funds to purchase NVIDIA chips, potentially creating tight linkages between AI demand, corporate valuations, and debt levels. If AI demand fails to meet expectations, these risks could be amplified within the supply chain. NVIDIA has not yet responded to requests for comment.