Nvidia Credit Default Swaps Surge to Record High as Wall Street Worries About Circular Financing Risks
According to ICE Data Services, Nvidia's five-year credit default swaps climbed to an all-time high of 82 basis points. The sharp move was triggered by a Bloomberg report stating that Nvidia is in talks over artificial intelligence infrastructure transactions that could exceed US$750 billion in total value.
The report said the proposed arrangements include approximately US$250 billion in financing guarantees for OpenAI to lease a planned data center in Ohio, as well as a separate financing package to support US$350 billion worth of OpenAI's chip purchases. The negotiations remain in the early stages.
Nvidia has also signed a US$50 billion lease for a data center in Texas that will utilize Nvidia's own chips. CEO Jensen Huang is increasingly leveraging the company's balance sheet to support the broader AI computing ecosystem.
Market concerns are centered on what credit analysts describe as circular financing. Nvidia has taken equity stakes in, or provided debt guarantees to, customers such as OpenAI and CoreWeave, which then use the funding to purchase Nvidia's own chips. Critics argue that this structure could artificially inflate apparent demand.
In 2026 alone, Nvidia has announced more than US$540 billion in such financing-related transactions, excluding the potential new OpenAI arrangement. Both the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) have identified AI-related circular financing as a potential source of systemic downside risk.
Nvidia's willingness to provide additional debt guarantees for OpenAI's data center expansion has further intensified scrutiny over supplier financing practices. The situation highlights both the enormous capital requirements of AI infrastructure development and the growing complexity of interpreting underlying demand.
The credit concerns have also spread beyond Nvidia. S&P Global recently downgraded Oracle Financial Software's credit rating to BBB-, the lowest investment-grade level, while its five-year CDS widened to 215 basis points. Last week, Google also reported its first negative free cash flow since going public, driven by massive AI infrastructure investments.
The five hyperscale cloud providers—Google, Amazon, Meta, Microsoft, and Oracle Financial Software—are expected to spend more than US$690 billion in capital expenditures during fiscal 2026, representing an increase of more than 80% year over year. As AI investment remains heavily front-loaded, many companies are expected to see free cash flow approach zero or even turn negative.
Market Insight:
This development carries significant implications for investors who have long viewed Nvidia primarily as a pure AI demand play. As markets begin pricing in balance sheet risk alongside growth expectations, the valuation framework is gradually shifting.
Nvidia shares are currently trading about 17% below their 52-week high. The next major catalyst will be the company's fiscal 2027 second-quarter earnings report, which is expected to be released after the U.S. market closes on August 26.
