Huang's Spy Probe Puts Nvidia's $400B AI Financing Web on Watch

Jensen Huang is under the microscope, and so is the financial web Nvidia built around him. The FBI, Congress and Nvidia's own board are examining the CEO's relationship with a woman The New York Times reported was suspected of spying for China. Analysts now treat a wide range of outcomes as possible, including Huang's removal. Nvidia, which reports earnings Tuesday, didn't immediately respond to a request for comment. Its board has expressed confidence in the CEO, who co-founded the company in 1993.

The market has been rattled. Nvidia's stock dropped 30% from its Oct. 6 peak through Tuesday's close, dragged down by a broader rethink of the AI trade after Democrats' surprise win in the Nov. 3 midterms. Shares bounced back Wednesday, climbing more than 4% by midday. Analysts still expect revenue to more than double this fiscal year and roughly double again over the next two years, according to LSEG data.

Nvidia's commitments are what make it systemically interesting. The chipmaker disclosed in July that it would buy up to $36 billion in cloud services from neoclouds — data center builders that use Nvidia chips and lease out capacity. It also pledged a $105 billion phased guarantee to an Ohio data center project planned by OpenAI and SB Energy, and promised to backstop up to $125 billion of a $500 billion credit program run by Wall Street firms. Columbia Business School's Stijn Van Nieuwerburgh puts the total at $400 billion, against a $4 trillion market cap.

Some of Nvidia's partners are already feeling heat. Credit-default spreads on CoreWeave debt jumped 94%, nearly doubling, between Oct. 1 and Nov. 5 before settling, per LSEG. An IREN convertible bond maturing in 2029 fell 23% from Nov. 3 to Nov. 5, while the company's share price slid 26%. Regulators call these arrangements circular financing: fine while business grows, painful if Nvidia can't honor its obligations. Opaque private credit funds have also lent heavily into the boom, and how they'd hold up is under debate.

Washington and Basel are paying attention. Former FDIC chair Sheila Bair says Nvidia isn't 'too big to fail in a bank sense at all' — it isn't exposed to a sudden loss of confidence and still sells a product customers want — but regulators should track banks' exposure to it. Fed officials were already discussing a possible 'broad-based repricing of assets' back in July. IMF assistant director Jason Wu, who led an October Global Financial Stability chapter on AI leverage, warns that 'both the economy and financial markets are standing on the same leg.' Hyperscalers now account for 10% of issuance in the $15 trillion investment-grade debt market, up from 1% two years earlier.

Not everyone sees contagion. Most neocloud share prices recovered this week even as Nvidia slid, suggesting investors read the trouble as company-specific. Competition is coming too: AMD, Broadcom, Intel, Google, Microsoft and OpenAI are all building their own AI chips, which could eventually replace Nvidia's and cap the fallout. Van Nieuwerburgh isn't reassured. 'I don't want to say it's a safe system, but I do want to say there's a lot of equity in the system right now,' he said, adding that central bankers 'are clearly very, very, very anxious about this.'