Nvidia's Credit Default Swaps Hit a Record and Nobody Wants to Discuss Earnings

Nvidia's Credit Default Swaps Hit a Record and Nobody Wants to Discuss Earnings

Nvidia's five-year credit default swaps hit a record 82 basis points on Monday, the biggest single-day jump since the contract started trading actively last November. They were around 68 at Friday's close and about 40 at the start of July. For a company with 4.6 trillion dollars of market cap and no meaningful net debt, that is a strange thing to be happening.

The trigger was a Wall Street Journal report, picked up by Reuters on Sunday evening, that Nvidia is in talks to guarantee roughly 250 billion dollars of financing so OpenAI can lease a data centre campus. The site is Piketon in southern Ohio, on the old Portsmouth Gaseous Diffusion Plant land, a 10 gigawatt build with a first phase near 800 megawatts by 2028. SB Energy, SoftBank's energy arm, is the landlord. It would be OpenAI's first deal as a tenant.

The structure is the part people are choking on. The guarantee covers lease payments, not the chips, and a separate financing discussion of about 350 billion dollars covers those. The reason a guarantee is needed at all is that OpenAI does not have an investment-grade credit rating. Nvidia's entire disclosed guarantee book is 3.5 billion dollars. Terms are unsettled and the talks could collapse. Neither company has commented, and Reuters said it could not verify the report.

Nvidia fell 4.99 percent on Monday to 196.51, shedding about 250 billion in market value and losing the most-valuable-company title to Apple. It closed up 0.25 percent on Tuesday, then dropped 3.55 percent on Wednesday to 190.01. Across the rout it has lost 238 billion. And it is not alone in credit: swaps on Oracle, SpaceX, Alphabet, Amazon, Meta and Broadcom all hit records in the same stretch. Manish Kabra at Société Générale summed the regime up as CDS, not EPS, mattering now.

Jim Cramer went at it on Monday night with the 2000 comparison. What we learned then, he said, is that you don't lend to customers who buy your goods, because they might default and your earnings get smashed. He added that many buyers of Nvidia's chips had strong balance sheets a year ago and no longer do. The counterargument, from Gil Luria at DA Davidson, is that this is a credit-enhancement instrument that lowers a customer's cost of capital, not 250 billion Nvidia expects to fund, and that the panic looks indiscriminate.

The BIS got there first. Its annual report in June warned that disappointment in returns could trigger a sudden pullback in financing and turn the capex boom into a protracted investment bust, and it named the circular arrangements directly, chip makers taking equity in labs that commit to buying chips, with the risk of the same asset pledged more than once. Equity investors are still arguing about AI demand. The credit market has quietly moved on to who is funding it.