Nvidia faced pressure to boost its AI backstop before Jensen Huang's exit

Before Nvidia Corp. was thrown into turmoil by the ouster of longtime chief executive Jensen Huang, a major initiative he championed alongside the giants of Wall Street was proving far more complicated than he had envisioned.

After months with no deals arising from a $500 billion partnership with six of the world’s largest asset managers, Nvidia in the past month has faced calls from some customers and Wall Street partners to boost the size of its financing backstop, according to people familiar with the matter, who asked not to be named discussing private negotiations.

Also read: Jensen Huang's third affair revealed after Nvidia exit; latest involves another employee: Report


The company had said it would provide a so-called residual value support agreement covering up to 25% of deals, a smaller share than competitor Broadcom Inc. has offered. That difference has complicated efforts to put together arrangements, some of the people said.

At this point, the earliest Nvidia could likely announce any deal is January, according to one of the people. That assumes Huang’s dramatic exit from the company after reports of extramarital affairs, one with a woman suspected to be a Chinese spy, doesn’t derail any transactions — or the entire project.

It’s a remarkable turn from the scene in August, which might have been the peak of “Jensanity” on Wall Street.

Huang, clad in his signature leather jacket, was flanked on TV by executives from Apollo Global Management Inc., BlackRock Inc., Blackstone Inc., Brookfield Asset Management, Goldman Sachs Group Inc. and KKR & Co. Together, they trumpeted a platform to collectively finance AI computing deals totaling a round figure of $500 billion.

A spokesperson for Blackstone declined to comment. Representatives for Nvidia, Apollo, BlackRock, Brookfield, Goldman Sachs, and KKR did not immediately respond to a request for comment.

Also read: The man in the leather jacket is gone, but new risk haunts AI firms

New Market

The chip debt financing market has exploded in size over the last year as the biggest players such as OpenAI, Anthropic PBC, and SpaceX seek to gain access to the expensive processors required to complete specialized AI tasks. Spending is already exceeding hundreds of billions of dollars.

Typically firms create a special vehicle to raise the debt to buy and own the chips, which the customer then leases. The value of these special purpose entities comes from the cash flows from the contract to use the technology, plus the value of the chips themselves.

But lenders fear cash-burning businesses could potentially renege on their leases, making residual value support from Nvidia and Broadcom crucial to attracting lenders. The way these backstops work is that if the lease payments stop, the assets are leased out again or sold to pay back the remaining debt. If there’s still a shortfall, then the backstop provider makes up the difference.

Crucially, this not only opens up more lenders to participate in these deals, but also helps secure higher credit ratings and thus lowers borrowing costs. Broadcom has already started doing these types of transactions through a partnership it struck in June called AI XPV with Apollo and Blackstone.

Broadcom in May backstopped $30 billion of a $35 billion debt deal where Anthropic is leasing tensor processing units, a type of chip made by Broadcom and Alphabet Inc.’s Google. The parts it backed won investment-grade ratings and cheaper interest rates.

A second $63 billion deal will also support Anthropic. Broadcom is providing a backstop on 72.5%, or about $43 billion, according to a filing, and this first-lien portion of the financing is being arranged by Bank of America Corp., Citigroup Inc., and Morgan Stanley. Meanwhile Blackstone is the sole provider of the committed portion of the second-lien financing. Portions of the debt are expected to be sold to a wider group of lenders in the first quarter.

Any resistance by Nvidia to increase its 25% residual value guarantee could make their chips harder for AI and cloud customers to afford, and make a deal less attractive for lenders, especially if there are similar transactions with more favorable terms being marketed at the same time.

For Nvidia, any higher threshold of support would come with more risk, and would undermine the purpose of trying to build out the platform with third-party money and fuel the next leg of the AI boom.

Then there are the questions about Nvidia itself without Huang, its only CEO over the past three decades.

Chief Financial Officer Colette Kress will take over as interim CEO, the company said Thursday, while Huang will no longer have ties with the chipmaker. Under his watch, Nvidia was dubbed “the central bank of AI,” taking equity stakes and providing backstops across the ecosystem to bolster confidence in a still-nascent industry.

That approach was epitomized by the August financing announcement. After Goldman, Blackstone and Apollo had worked for months on debt deals that didn’t come to fruition, Huang publicly lauded the $500 billion that would finance his clients, who underpin Nvidia’s future demand. The jolt came at a crucial time, just weeks after AI-focused hedge fund Situational Awareness faced staggering losses that rippled across tech and chip stocks.

Next time around, the confidence boost will have to come from somewhere other than Huang.