(Bloomberg) -- Even before Nvidia Corp.'s splashy $500 billion financing partnership this week, investors were starting to fret over the roughly $70 billion in phantom liabilities that don't appear on major AI companies' balance sheets, but could materialize at the worst possible time. Anthropic Revenue Surges to Over $11.5 Billion in Second Quarter US Readies Unprecedented 'Economic Isolation' Plan for Iran Selena Gomez Accused of Fraud by Mental-Health Startup Investors Costliest US Bond Sale Since 2001 Is Investor Warning to Bessent OpenAI's Annualized Revenue Tops $40 Billion Ahead of IPO With its latest move, Nvidia is poised to provide potentially tens of billions of dollars of what's called "residual value" support for debt deals tied to the artificial intelligence build out — effectively letting firms rely on its strong credit rating in a bid to contain customer costs. With demand for computing power soaring, this backstop has become something akin to a free lunch for massive companies like Nvidia and Broadcom Inc., since they can bolster sales to clients and AI firms without taking debt onto their own books.
Meta Platforms Inc., which first used this structure for its own data centers, referred to its residual value guarantees plainly in filings: "RVG payments are not probable, and therefore no liability has been recorded to date." "Not probable," though, is increasingly not enough for some. These backstops are expected to expand with the looming explosion of AI chip debt. That's led investors to look at the handful of past deals for clues about how Nvidia could structure its agreements.
Under the way Meta put together its deals, the backstop could only come into play if Meta itself chooses to walk away from its data centers early. But Broadcom applied the concept to chip financing and is backstopping Anthropic PBC, tying its own exposure to a customer's moves. The arrangements typically involve a multi-step chain: a special-purpose vehicle borrows money to buy the chips, backed by the cashflow from a contract with a company that will use the technology.
If the firm stops paying, then the assets are leased out again or sold to pay back the remaining debt. If there's still a shortfall, then the backstopper makes up the difference. In theory, that sequence is a remote risk.
Proponents argue that demand for chips will outstrip supply for years. The debt is structured to be paid down in full over time, meaning the possible cost of any residual value support also drops as the years pass. Arguably, the tech risk lands where it belongs: on the balance sheets of companies with enough cash to absorb a blow if something goes wrong.
Yet rating agencies aren't ruling out those backstops being used, and investors are urging caution over risks accumulating off balance sheet. Wall Street was already skeptical that the blistering pace of AI infrastructure spending will yield sufficient returns. In an industry downturn, these backstops could force chipmakers to honor billions in pledges precisely when their own earnings are under pressure.
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