View / AI labs flock to the Bank of Jensen

OpenAI and Anthropic need to borrow a lot of money but they don’t have profits or a track record of creditworthiness. Enter Jensen Huang.

Nvidia’s $250 billion backstop to OpenAI will let the money-burning AI lab lease space at the largest data center ever built. OpenAI doesn’t have an investment-grade rating, so Nvidia is essentially lending its own. Broadcom did the same thing for Anthropic a few weeks ago; I wrote at the time that it was “like getting your parents to cosign the lease on your first apartment.” Nvidia’s backstop for OpenAI is literally that — OpenAI is trying to sign a lease and its landlord, SoftBank, doesn’t like the tenant risk. So Huang is cosigning.

It’s classic credit-enhancement, taking a risky thing and wrapping it in something safer. Usually this goes fine. Occasionally it’s catastrophic. Fintwit is busy casting the AI version of Too Big To Fail.

The notion of Nvidia-as-AIG is right in one respect: The company most to blame for the 2007 bubble wasn’t a bank writing bad loans, but the insurer that backstopped them, spreading that risk throughout the financial system. Risky mortgages went into AIG and came out stamped AAA. Risky AI stuff is going into Nvidia, Broadcom, and Google and emerging similarly shined up.

Spreading risk around is sometimes prudent — it’s how mutual insurance works. But it also brings players that might have sat out a crisis into the thick of it. AIG didn’t need to be a part of the mortgage crisis. Nvidia does need to be a part of the AI buildout, but it is testing its balance sheet to finance its customers. (OpenAI will put Nvidia chips inside the Ohio data center.) That has echoes of General Electric and General Motors, which were nearly toppled by their finance arms in 2008.

In the run-up to that crisis, then-Fed Chair Alan Greenspan praised newfangled financial products for making the system safer. Credit derivatives were “an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” he told a Senate committee in 2003. Everyone is willing when the numbers keep going up. Not everyone is capable. AIG was not. Nvidia, TBD.