Wall Street firms back $500bn plan to lease Nvidia AI chips

In short: Major finance firms are helping fund a $500bn plan to let companies lease Nvidia AI chips, betting the chips will hold their value for years.

What's going on

Wall Street investors are treating Nvidia’s AI chips as something closer to an asset you can finance, not just fast-aging tech. Nvidia this week unveiled a $500bn arrangement where tech companies can lease semiconductors, with financing support from firms including Apollo Global, KKR, Brookfield, BlackRock, and Goldman Sachs.

The bet is simple. Demand for Nvidia chips has been so strong that backers think the chips will stay valuable longer than many analysts usually assume. That goes against a common rule of thumb in finance that tech hardware loses value quickly, like last year’s smartphone.

Nvidia chief Jensen Huang said the deal could create a new “asset class” backed by chips. Nvidia is also offering a guarantee that the chips will keep at least 25 percent of their value during the lease term. That means Nvidia would cover part of the loss if the chips fall in value more than expected.

A key risk is that demand could cool. Analysts warn that if companies build too many data centers, or if AI models get more efficient and need less computing power, then older chips could become harder to resell. Unlike rental cars or airplanes, chips do not have a long track record of reliable resale markets.

What to watch

Watch whether these chip leases start being bundled and sold to other investors, like insurance companies, as some executives expect. Also watch how long customers keep using older chips, and whether loan terms extend beyond the current three to five years that many lenders prefer.

Source: Financial Times