Is OpenAI Default Risk Controllable? Bank of America Reveals NVIDIA's 55% Stock Price Surge Reason

Despite continuous scrutiny over NVIDIA (NVDA-US) for providing financial support to clients and partners, Bank of America analyst Vivek Arya recently analyzed that as long as investors are willing to bear the related risks, NVIDIA's stock price still has over 55% upside potential.

Arya pointed out that NVIDIA's current stock price is around $225, which is still cheap compared to its free cash flow creation ability. If the company further expands its stock buyback, providing more cash back to shareholders, it could become an important catalyst to support valuation.

Currently, NVIDIA allocates about half of its free cash flow to stock buybacks, which is lower than some peers investing 75% to 100%. Arya believes that strengthening buybacks would be the most direct way to address market concerns about AI investments, off-balance-sheet commitments, and profit quality.

Collaborating with SB Energy to Support OpenAI's Ohio Data Center

According to documents NVIDIA submitted to the U.S. Securities and Exchange Commission (SEC) on Monday, the company has reached a partnership with SB Energy to provide up to $105 billion in financing support for a data center in Pike County, Ohio. OpenAI will be the tenant of this facility.

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This arrangement once again raises market concerns about NVIDIA's overly close financial relationship with its clients. However, Arya believes that the actual risk is lower than what the surface amount presents.

According to the agreement, NVIDIA only needs to provide collateral for the "residual value" of the data center if OpenAI fails to fulfill the lease agreement. In other words, NVIDIA is responsible for the difference between the minimum value and the proceeds from re-leasing or selling, with a maximum liability cap of $105 billion.

This scale is far lower than the previously reported $250 billion. Earlier reports suggested that NVIDIA might provide up to $250 billion in collateral for a 10-gigawatt data center.

Preemptively Securing Land, Power, and Infrastructure

Arya believes that NVIDIA's provision of financing at this time has strategic significance. As demand for AI chips and data center capacity continues to tighten, competition is no longer limited to GPU supply but extends further to land, power, and physical infrastructure.

Through this collaboration, NVIDIA can preemptively secure data center resources needed to deploy its own GPUs, preventing competitors from obtaining key infrastructure, while reducing dependence on major cloud service providers. These tech giants are actively developing their own AI chips, posing potential competition to NVIDIA.

Arya stated that NVIDIA's investments in cutting-edge AI labs and emerging cloud service providers help accelerate the overall development of the AI industry but may also lower profit quality and suppress the valuation multiples the market is willing to give.

Cooling AI Demand Remains the Biggest Risk

However, this financing arrangement is not without risks. If OpenAI defaults alone, the Ohio data center can still be sold or re-leased to other companies, reducing NVIDIA's actual losses.

But if the default occurs amid a simultaneous cooling of overall AI demand, the market may lack new tenants willing to take over, at which point not only could the value of the data center decline, but it could also put pressure on NVIDIA's growth rate and balance sheet.

Arya expects NVIDIA to further disclose its off-balance-sheet commitments and related financing arrangements when it releases its earnings on August 26, becoming an important focus for investors to assess risks.