The Nvidia boss warns of a bubble himself and proposes a model that reminds critics of 2008

The short version

• Nvidia is valued at around 5.1 trillion dollars and the shares closed Friday at 211.94 dollars.
• The financing guarantees for an OpenAI data centre have been cut from around 250 billion dollars to below 120 billion.
• Huang caps the residual value backstop at up to 25 percent of each opportunity, with quarterly figures due on 26 August.

Jensen Huang has warned of a possible bubble in artificial intelligence and stressed that the market for the underlying infrastructure is extremely cyclical. Once the demand surge fades, overcapacity could build up, data centre operators could pull back on investment and demand for high end chips could drop sharply.

What stands out is who said it. Huang runs Nvidia, the company that benefits most from exactly this build out.

The group is currently valued at around 5.1 trillion dollars. The shares closed Friday at 211.94 dollars, up 2.56 percent. Results for the second quarter of the 2027 financial year are due on 26 August.

The proposal that started the debate

Huang published a post on the platform X describing computing power for artificial intelligence as an asset class of its own. The idea behind it is to securitise that computing power and open it up to investors.

An analysis on the platform Seeking Alpha reads that as an admission. The companies building this infrastructure apparently do not have enough capital of their own to keep the build out going.

That is exactly what makes the structure contested. Securitisations bundle cash flows from many individual contracts into a tradable security. The analysis compares the emerging model directly with the mortgage securities at the centre of the 2008 financial crisis. In such structures the damage usually only becomes visible once the underlying assumptions on growth, utilisation and defaults turn out to have been too optimistic.

Circular financing at the heart of the criticism

The second point of contention is Nvidia's role as a lender to its own customers.

The group negotiated financing guarantees of around 250 billion dollars for an OpenAI data centre and separately looked at financing chip purchases. That figure has since been cut to below 120 billion dollars.

Critics call the model circular financing. Nvidia lends a customer money so the customer can buy Nvidia chips. That makes the demand figures look bigger and raises contingent liabilities on the balance sheet. For outsiders it becomes almost impossible to tell real demand from demand that has been pushed along.

It is striking who shares that criticism. Michael Burry, known for his bet against the American housing market before 2008, has disclosed new short positions against artificial intelligence and semiconductors. Stacy Rasgon of Bernstein has warned about the same mechanics, even though his firm still rates the stock a buy with a price target of 315 dollars.

When the loudest advocate and the biggest sceptic talk about the same mechanisms, the revenue figures on 26 August deserve a close look.

Huang caps the risk at 25 percent

On 12 August the shares rose sharply in early trading as credit risk worries eased. Huang had said Nvidia would provide a residual value backstop of up to 25 percent of each opportunity within certain projects, on a project basis and after careful review.

Meta Platforms has introduced a similar model for data centres. Its filings state that payments under such residual value guarantees are not probable, which is why no liability was booked. Broadcom has applied the same principle directly to chip financing and backstopped Anthropic.

The advantage for the manufacturers is that the backstop supports sales without loading their own balance sheet with debt.

Two further risks

Beyond the financing question, analysts point to two structural issues.

The first is China. Huang still considers the Chinese market important, while American export restrictions limit access. Specialists warn that China could flood the market with cheap chips and push hardware prices down. If the installed graphics processors lose value faster than assumed, default risk on the loans secured against them rises and investors would demand higher returns.

The second is competition from within the customer base. Google, Amazon and Meta are developing their own specialised chips. The Chinese developer DeepSeek is reported to be working closely with Huawei and wants to source around 16,000 of its chips to reduce dependence on Nvidia's software environment.

Despite the warnings, fund flow data shows no sign of retreat so far. A common indicator of institutional inflows and outflows currently reads as accumulation at Nvidia rather than distribution.

Frequently asked questions

What is circular financing at Nvidia

Critics use the term for Nvidia lending customers money so they can buy Nvidia chips. That makes demand look larger and raises contingent liabilities on the balance sheet. From the outside, genuine demand is hard to tell apart from demand that has been pushed along.

How large is Nvidia's commitment to OpenAI

Nvidia first negotiated financing guarantees of around 250 billion dollars for an OpenAI data centre. That figure has since been cut to below 120 billion dollars. Huang also caps the residual value backstop at up to 25 percent of each opportunity.

Why do critics compare the model with 2008

The proposal to securitise computing power bundles cash flows from many individual contracts into tradable securities. An analysis on Seeking Alpha compares that directly with the mortgage securities of the 2008 financial crisis. In such structures the damage tends to surface only once assumptions on growth, utilisation and defaults prove too optimistic.

When does Nvidia report next

Results for the second quarter of the 2027 financial year are due on 26 August. Nvidia is currently valued at around 5.1 trillion dollars and the shares closed Friday at 211.94 dollars. Bernstein still rates the stock a buy with a price target of 315 dollars.

This analysis is for information only and is not investment advice.