'AI ecosystem expansion': NVIDIA reaches out to Wall Street insurers

[Financial News]  

NVIDIA is reportedly contacting insurers in an effort to expand the AI ecosystem. The company is urging them to develop insurance products covering default (bankruptcy) risk so financial institutions can invest more confidently in cash-strapped neocloud companies.
FT reported on the 29th (local time), citing sources, that NVIDIA is reaching out to the insurance industry after contacting Wall Street investment banks and private equity firms. The company wants to share with insurers the risk of default that could arise from the massive capital committed to AI infrastructure investments.

One proposal involves preparing for a situation in which a neocloud company goes bankrupt and cannot fully repay its loans even after reselling its NVIDIA chips. Under the plan, an insurer would cover the shortfall. This would allow investors to increase lending to or investment in neocloud companies without worrying about losing their money.
FT noted that the discussions are at an early stage and may not produce any results, but said NVIDIA is conducting various financial experiments to expand the AI ecosystem.
If such insurance products emerge, startups such as neocloud companies would find it easier to raise funds, while NVIDIA could sell more chips.

The financial technique being considered is to turn AI chips into "investable long-term assets."
NVIDIA CEO Jensen Huang argues that the company's AI chips are valuable long-term assets that generate revenue, much like real estate or aircraft.
Because an aircraft can cost hundreds of billions of won, airlines typically obtain long-term loans from financial institutions or lease aircraft rather than buy them with their own funds. Financial institutions are also willing to lend because aircraft retain their value for decades and are relatively easy to resell as used assets.

NVIDIA is conducting or planning various financial experiments.
First, NVIDIA guaranteed payments under a $105 billion infrastructure lease agreement to build OpenAI data centers. Because OpenAI would have difficulty paying such a large amount in cash, the arrangement allows it to lease equipment through specialized leasing companies or financial institutions. In return, NVIDIA has promised to make the payments if OpenAI fails to pay the lease fees.
NVIDIA has also offered to guarantee part of the loans so that Goldman Sachs and Apollo Global Management can make $500 billion available.
NVIDIA is discussing risk-sharing cooperation with insurers. The exposure is too large for any single insurer to handle. One proposal under discussion involves bringing in hedge funds or forming a consortium of several insurers to share the risk.
NVIDIA is reportedly persuading at least one insurer by providing data on the depreciation of its chips and estimates of future computing prices.

[email protected] Song Kyung-jae Reporter