/ Chip giant turns lender to fuel growth.
Liam Ortiz is a tech journalist who covers AI related big tech and breaking news at TheTweaks. Before joining TheTweaks he worked for almost four years in corporate and national tech news in different companies. Few are quick but Liam is quicker, he breaks news before anyone else and that makes her special. His passion is somewhere connected with profession as his hobby is watching documentary movies.
Nvidia’s upcoming Q2 earnings report has a bigger problem than just strong balance sheets: it has to answer the question of just how much it’s paying for the AI boom it’s driving.
As usual, analysts expect Nvidia to post stunningly good results: its revenue could increase by nearly double year-over-year, with data centers making the bulk of the contribution. This would be the fastest growth rate Nvidia saw in nearly two years, with guidance for the next quarter expected to point to the continuation of the acceleration, while maintaining gross margin levels above the 70% mark.
These are numbers for a company which is firing on all cylinders, but Nvidia’s stock performed poorly compared to its fellow Big Tech peers this year, temporarily relinquishing the title of the most valuable company. It’s this gap between great fundamentals and poor stock performance which investors are expecting to see addressed this quarter and it all comes down to how Nvidia finances its growth.(Reuters)
In the middle of the numbers stands a true product challenge: Nvidia Rubin chips, the successor to Blackwell, are expected to become available in the fall. The early estimates suggest that Rubin could bring about $9 billion in revenues in its very first quarter of availability which would be significant, but also an early indicator of whether customers are upgrading due to their needs, or Nvidia just keeps financing the process for them.
The point is that Nvidia isn’t just running risks with the Rubin chip production. Custom silicon, offered by some of the cloud giants, as well as the competing processors, offered by Nvidia’s direct competitors, will chase the same AI inference workloads as Rubin will. A successful ramp of Rubin could prove Nvidia’s position at the top based on merits, while the problems could pose the question of whether Nvidia’s customers are buying Nvidia’s financing products rather than its chips.
There’s one angle to Nvidia’s situation which is mostly missed in the media coverage: Nvidia has effectively created its own private lending program for its own customers. The company helped organize a huge bank-backed lending pool which targets companies building AI infrastructure, and separately guaranteed a multibillion-dollar, two-decade lease on data centers for one of its major AI customers. All of those together put Nvidia’s financial exposure in the hundreds of billions: money which flows from Nvidia, into building up infrastructure, and back to Nvidia in orders for chips.
Supporters of Nvidia’s policy argue that the company is just making a good use of its surplus funds: there are many cash-starved but rapidly growing AI infrastructure companies, which need to build out their capacity and acquire power, real estate and facilities for them. Nvidia leadership argues that its customers are the actual payers for the services; Nvidia just removes the risk from building out the infrastructure so the chip orders have somewhere to go.
But the critics see things differently: when a company is both the supplier of chips, the financier, and sometimes even the guarantor of long-term leases, it’s difficult to distinguish between the true end-user demand and the demand which wouldn’t have appeared without Nvidia’s financing help. And if the adoption curve for the AI technologies slows down, Nvidia will be exposed not just as a chip supplier, but also as a lender.
Forget the revenue beat those numbers that actually matter:
If Nvidia is able to demonstrate that its Rubin adoption numbers are organic and its financing exposure is being managed prudently, it’s likely to reverse its stock performance this year fast. If not, the “central banker of AI” narrative will gain traction and loud narratives attract the regulatory and media attention which a mere product upgrade cycle never would.
The upcoming Q2 earnings report of Nvidia will be seen as a demand story, but it’s actually a trust story: the company has quietly taken over the $500+ billion exposure in financing on top of its core business, and this changes everything. Great Rubin adoption numbers wouldn’t just confirm a product cycle: they’d confirm a financing cycle which was never used on such scale before in tech. Our advice: pay closer attention to the financing numbers than to the revenue beat. If Nvidia continues adding guarantees to finance its buyers, this will stop being a growth story and become a leverage story and leverage stories usually end abruptly.
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