Nvidia's AI revolution will be securitized
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Nvidia on Monday announced plans to raise around $500 billion to help finance AI infrastructure buildouts, in partnership with six of North America's largest investment firms.
Zoom in: Much of that money is likely to come via GPU securitizations — spreading out the exposure across insurance companies, pension systems, sovereign wealth funds, and more.
- If this gives you a pang of PTSD, you're not alone.
The big picture: Wall Street is betting America's economy on unwavering compute demand.
- Not just this deal, but also a spate of similar financing arrangements that presume no AI lab will build a vastly more efficient mousetrap.
- Or that data center growth won't be significantly restricted by political pressures. Or quantum computing advancements. Or something else we can't yet see, such as an unexpected increase in rare metals production that could flip chip scarcity into surplus.
- It's not blind faith. There are some solid economics here, including how older NVIDIA chips have demonstrated collateral value. But it's also not a sure thing — exuberance can be both rational and risky.
Deal details: The participating firms are Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR.
- Each firm will evaluate opportunities on a case-by-case basis, and submit allocation requests to Nvidia (which "may provide a residual-value support mechanism for up to 25%").
- Expect many of them to create internal allocation mechanisms, spreading out the opportunities within their own business units. Some firms will invest off balance sheet, some will leverage their insurance arms, some will invest out of credit funds, etc.
- Waldemar Szlezak, KKR's head of digital infrastructure, tells me his firm has been speaking to Nvidia for over a year, but that "this iteration really picked up steam over the last month or so."
Back in time: There are lots of positive historical comparisons here, in terms of massive industrial buildouts backed by credit. Railroad systems. Airplane fleets. Automotive (in fact, this whole thing feels a bit like new-school GMAC).
- That said, securitization trends can begin with good intentions and then cause calamity.
- Particularly when there is structural circularity, which has become a hallmark of the AI boom.
Worthy of your time: Nvidia CEO Jensen Huang on Tuesday published a LinkedIn post, making his case for the investability of AI compute.
The bottom line: The revolution will be securitized.
