Using AI Chips as Long-Term Debt Collateral? 'New Bond King' Gundlach Fires Back: 'Like Issuing ABS with Bananas'

Jeff Gundlach, CEO and Chief Investment Officer of DoubleLine Capital, has warned that Wall Street's efforts to transform artificial intelligence (AI) chips into an investable asset class could be a sign that risk markets are nearing a peak.

Gundlach has targeted NVIDIA's (NVDA-US) recent announcement of a partnership with six financial titans, aiming to mobilize over $500 billion in funding for AI infrastructure.

Last week, NVIDIA announced it had signed a memorandum of understanding with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR to establish a computing power financing platform for customers.

According to NVIDIA's press release, the funding will help companies raise capital to access NVIDIA chips and broader 'AI factories,' while its partners will package computing power into long-term infrastructure suitable for institutional investors.

However, the so-called 'New Bond King' Gundlach remains skeptical, questioning whether using rapidly evolving technology as collateral for long-term loans is prudent.

On X, Gundlach likened the idea to issuing 30-year asset-backed securities (ABS) backed by a warehouse full of bananas, asking, 'Using an asset with an unknown lifespan as collateral for long-term debt?'

He said that even if these bananas are the 'latest genetically modified bananas with unknown lifespans,' the consortium's plan 'might not stand the test of time.'

Gundlach's argument centers on the mismatch between debt maturity and the duration for which chips retain value. While AI processors can generate strong cash flows during periods of high demand, market concerns persist that current chips may become obsolete before loans are repaid, given the rapid pace of AI advancement.

In another post, Gundlach noted that the top of risk markets 'won't come with a warning bell.' He advised investors to closely watch new asset classes built on financial innovation and promoted by what he calls 'dubious' credit ratings.

Mark Cuban, owner of the NBA's Dallas Mavericks, also offered a brief analogy on the matter, saying, 'Chips as an asset class will become the new cryptocurrency.'

Gundlach's view echoes that of Michael Burry, the famed investor and real-life inspiration behind the film 'The Big Short,' who has repeatedly voiced similar concerns in recent months. Burry, a vocal critic of the AI bubble, has publicly shorted several AI companies and has repeatedly warned that tech giants are over-investing in chips that will quickly become obsolete as technology evolves.