FT: Nvidia in early talks with insurers to de-risk neocloud AI chip loans

Nvidia has held early-stage talks with insurance companies about structures that would shift part of the credit risk on loans tied to its AI chips, the Financial Times reported on Tuesday, citing people familiar with the discussions. The talks may not lead to any deals.

What is being discussed

One idea under discussion would insure loans extended to smaller cloud providers known as neoclouds, which pledge Nvidia chips as collateral. If a borrower defaults and the resold hardware fetches less than the outstanding debt, the cover would protect the lender. The FT reported that Nvidia is working with reinsurance broker Howden Re on one possible structure, and that Howden declined to comment.

Chip depreciation and who carries the risk

According to the report, Nvidia has given at least one insurer data on how quickly its chips lose value and on the expected future value of computing power. The discussions have also covered passing part of the risk from insurers to hedge funds and other alternative investors, with the potential size of some deals exceeding the balance sheets of even large insurers. Nvidia has considered joining consortia alongside insurers, hedge funds and asset managers, the FT said.

Why it matters

The push is part of CEO Jensen Huang's effort to make chips and AI infrastructure easier for outside investors to finance. Nvidia argues that "AI infrastructure is an investable asset class because it's uniquely productive, durable and fungible", as quoted on the FT News Briefing podcast. On the same podcast, the FT's insurance correspondent Lee Harris said startups are already selling "residual value insurance", which protects large chip buyers if their hardware loses value faster than expected. Harris added that many large traditional insurers are already at their limit for exposure to AI companies, and that the global insurance industry is small next to the scale of AI investment.

According to Investing.com's write-up, the move follows Nvidia's offer to backstop part of financing deals aimed at unlocking $500 billion of capital from financial firms including Goldman Sachs and Apollo. On Monday the company also announced a $150 billion share buyback.