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Nvidia's $171.5 billion neocloud exposure faces test as CoreWeave default-swap spreads top 1,100 basis points
A sell-off in AI cloud providers' shares and bonds this month is putting a price on the guarantees Nvidia has extended to its smaller customers.
HedgeWeekly News Desk ·
Nvidia has about $171.5 billion tied up in AI cloud providers, and an October sell-off in their shares and bonds is the first real market test of its role as the sector's backstop, CNBC reported on October 24. The total combines more than $7 billion of direct equity investments with up to $164.5 billion of guarantees and other data-centre commitments disclosed as of Nvidia's July quarter, including agreements to cover lease payments if tenants default and pledges to buy capacity. Among them, Nvidia has committed to buy up to $6.3 billion of CoreWeave computing power if CoreWeave cannot find another buyer, CNBC said.
The so-called neoclouds, which rent out Nvidia-powered computing, have taken the hardest hit. CoreWeave shares fell about 38% in October through October 23, closing at $54.24, while Nebius and IREN have each lost more than 30% this month. CoreWeave's five-year credit default swap spread reached 1,115 basis points, up 36% in October alone, and yields on its unsecured bonds have risen above 15%.
Nvidia has played down the danger. Chief executive Jensen Huang said at GTC Berlin on October 22 that demand for neocloud capacity was "off the charts" and that what the sector lacked was working capital to fund its growth. In August, chief financial officer Colette Kress said the risk was limited, arguing that Nvidia could redeploy chips to other customers and that its commitments would not all fall due at once. Nvidia-backed Australian operator Firmus has meanwhile shelved its IPO and is seeking at least $2 billion in private funding.
Why it matters: because Nvidia has guaranteed leases and capacity purchases, stress at its smaller customers can flow back to the chipmaker through those obligations and through the value of its equity stakes, which makes neocloud credit a partial read on Nvidia's own risk. CoreWeave notes sold as recently as June at a 9.625% yield now trade below 80 cents on the dollar, a sign that investors are pricing in refinancing risk for the most indebted builders. Funds and allocators should watch CoreWeave's default-swap and bond prices, whether Firmus completes its private raise, and the update on guarantees and purchase commitments in Nvidia's next quarterly filing.