Companies building artificial intelligence (AI) data centers are rapidly increasing their use of GPU-backed loans, using NVIDIA graphics processing units (GPUs) as collateral.
According to the IT industry on September 28, U.S. AI cloud company CoreWeave confirmed a $2.6 billion GPU-backed loan on August 10, arranged by JP Morgan and Mitsubishi UFJ Financial Group (MUFG). This brings CoreWeave's total GPU-backed loan agreements for 2023 to $26.6 billion, following an initial $2.3 billion loan.
The interest rate for this loan is set at 5.50 percentage points above the Secured Overnight Financing Rate (SOFR), which is 1 percentage point higher than the $3.1 billion loan taken in May (SOFR + 4.50%). Both loans carry ratings of Ba2 from Moody's and BB+ from Fitch. Notably, this loan includes a provision allowing the GPUs to be re-leased to other customers after the initial contracts expire, marking a shift in the risk of residual GPU value to the lenders.
GPU-backed loans are primarily utilized by AI-focused cloud companies, often referred to as 'NeoCloud.' These companies purchase NVIDIA GPUs in bulk to lease computational power to AI firms, with investments often reaching billions of dollars for a single chip. Unlike big tech companies that can fund investments with operational cash, these firms typically lack sufficient capital and have adopted a model that combines GPU and customer lease contracts to secure loans.
Loan terms are evolving rapidly. Initially, GPU-backed loan interest rates hovered around 15% annually, but CoreWeave's $8.5 billion loan in March received an investment-grade rating (Moody's A3) based on a $14.2 billion contract with Meta, with a fixed interest rate of approximately 5.9%.
This financing model is spreading to other companies. Dutch firm Neovus secured a $775 million GPU-backed loan in July, led by MUFG. Companies like Crusoe and Lambda have also obtained funding using GPUs as collateral from major investment firms such as Blackstone, PIMCO, Carlyle, and BlackRock.
According to a report by Nikkei Asia, citing analysis from researchers at the U.S. Federal Reserve, the outstanding GPU-backed debt in the U.S. approached $46.3 billion (approximately 62 trillion won) as of August.
NVIDIA, a chip supplier, is also entering the financial sector. On August 10, the company announced plans to develop a computing finance platform to raise over $500 billion in external funds, partnering with six firms including Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR. NVIDIA indicated it could guarantee up to a quarter of this amount.
As the scale of GPU-backed loans increases, concerns about associated risks are also growing. GPUs depreciate rapidly, with new models released almost annually. Industry estimates suggest the residual value of the H100 chip could drop by 50% to 70% over three years, with critics suggesting declines could exceed 70%. Rental rates for the H100 have fallen by more than 60% from their peak. CoreWeave disclosed that the loan's maturity is approximately five years, while the average customer contract tied to the collateral is about three years. This misalignment raises concerns that falling chip prices and rental rates could destabilize loans, drawing comparisons to the 2008 subprime mortgage crisis.
* This article has been translated by AI.
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