Nvidia is pursuing over $750 billion in artificial intelligence (AI) related deals with SK Group and OpenAI, reigniting concerns over 'circular trading.'
According to Bloomberg on July 27, Nvidia announced that its collaboration with SK Group is expected to exceed $500 billion in mutual transactions.
This includes memory semiconductors purchased from SK Hynix and supercomputers that SK Group will implement. Nvidia plans to support SK Hynix's next-generation high-bandwidth memory (HBM) design to ensure a stable supply chain for AI semiconductor memory.
The two companies will also establish AI data centers in South Korea with a capacity exceeding 2 gigawatts (GW), enough to power approximately 1.5 million households. The first 'AI Factory' being built by SK Telecom is set to begin operations next year.
Nvidia is also discussing a large financial transaction to support OpenAI's U.S. data center operations. This plan includes providing up to $250 billion in guarantees to allow OpenAI to lease a $500 billion data center hub being developed by SoftBank Group's subsidiary, SB Energy, in Ohio.
Additionally, Nvidia is reportedly negotiating to provide up to $350 billion in funding to enable OpenAI to purchase its semiconductors for this project.
However, the market is focusing on Nvidia's structure of investing in or providing financing to customers who purchase its products. This could create a so-called 'circular trading' structure, where companies supported by Nvidia buy its semiconductors, intertwining investment and demand.
Critics argue that such transactions could distort actual AI demand and inflate the value of related companies. If AI firms fail to generate expected profits, investments, borrowing, data center construction, and semiconductor purchases could simultaneously decline, leading to losses across the industry.
Gary Tan, a portfolio manager at Allspring Global Investments, stated, "Nvidia's investments and partnerships strengthen confidence in the long-term expansion of AI infrastructure, but investors remain concerned about the circular trading structure. Funds are increasingly being used to support future AI customers and infrastructure development."
Amid these concerns, Nvidia's stock fell 5% to close at $196.51 on the New York Stock Exchange, marking its largest single-day drop since June 5. Nvidia also ceded its position as the world's most valuable company to Apple.
The credit default swap (CDS) premium reflecting Nvidia's default risk surged to a record high, rising by as much as 0.14 percentage points to 0.82% annually.
Mandip Singh, an analyst at Bloomberg Intelligence, noted, "Nvidia wants to ensure that AI infrastructure investments continue at the current pace. A halt in investments for just six months could pose significant risks for Nvidia."
Nvidia is also reported to have committed to investing $5 billion in SafeSuperintelligence (SSI), co-founded by former OpenAI chief scientist Ilya Sutskever. Additionally, it plans to invest $1 billion in an AI data center being constructed by Naver in South Korea to support a threefold expansion of its capacity.
Excluding the new deal Nvidia is discussing with OpenAI, the total value of similar investments and collaborations announced this year exceeds $540 billion. Data center operators such as CoreWeave, IREN, and Nebulous Group are also included among the investment targets.
Billy Leung, an investment strategist at Global X Management, remarked, "If Nvidia further guarantees OpenAI's data center debt, it will reinforce the already controversial financing structure for suppliers. This is both a signal of AI demand and a case revealing the financial pressures in the process of building AI infrastructure."
Meanwhile, Jensen Huang, CEO of Nvidia, dismissed the notion that the company's deals constitute circular trading. In January, regarding the investment in CoreWeave, Huang stated, "The amount Nvidia invests is a tiny fraction of the total funds that the company ultimately needs to raise. To view this as circular trading is absurd."
* This article has been translated by AI.
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