NVIDIA Corporation (NASDAQ:NVDA) just partnered with six major financial institutions on a $500 billion financing push for artificial intelligence infrastructure. The chipmaker said on Monday that it has signed memorandums of understanding with Apollo Global Management, Blackstone, BlackRock, Brookfield Asset Management, Goldman Sachs, and KKR to establish independent computing financing platforms for Nvidia’s customers.
Marking a major milestone for Nvidia and the AI industry, Chief Executive Officer Jensen Huang noted how the move will help bring the “world’s leading long-term capital providers together to independently underwrite AI infrastructure.” Major technology companies continue to ramp up AI investment, with total spending expected to surpass $730 billion this year.
Following the news, Wells Fargo analyst Aaron Rakers reiterated an Overweight rating on the stock with a $315.00 price target. The Wall Street firm sees the financial partnership as proof that Nvidia is playing a bigger role in AI infrastructure build outs. However, the bigger story may extend well beyond another bullish analyst call.
The Partnership Could Tackle the Financial Aspect
Big tech has been spending hundreds of billions to fund the AI boom, while growing financial needs has turned Wall Street skeptical regarding the returns these investments will ultimately generate.
No wonder Meta Platforms, Inc. (NASDAQ:META) also recently announced a venture with asset manager BlackRock, Inc. (NYSE: BLK) to develop and operate a one gigawatt data center campus in El Paso, Texas. The Meta-BlackRock deal aims to ease some of Meta’s funding pressures, similar to what Nvidia is trying to achieve with its recent financing effort.
According to Wells Fargo, the new platforms would help Nvidia in long-duration financing tied to revenue, as well as sharing and usage, helping mobilize over $500 billion of 3rd-party capital for AI infrastructure build outs.
Why is this distinction important? Simply because Nvidia isn’t committing its own $500 billion but bringing large pools of institutional money into AI infrastructure. These financing platforms will not only enable customers to access compute resources at scale, but may potentially help Nvidia develop an evolving recurring revenue model.
The Bigger Picture
The Nvidia partnership isn’t entirely risk free, and comes with its own financial and market hazards. Jim Zelter, Apollo Global Management President, has noted that the AI investment cycle will likely experience “excesses” and “pullbacks.” Goldman Sachs CEO has also warned that some major companies may ultimately fail to live up to expectations.
The risk becomes noticeable considering Nvidia has the option to backstop 25% of each loan made through the program. This may expose its balance sheet to contingent liabilities, circular financing concerns, and even default exposure.
Famed short-seller Michael Burry has also echoed some of the skepticism, arguing late last year how big tech companies may be extending the useful lives of AI hardware and therefore understating depreciation expenses.
What the Hedge Fund Numbers Say
Nvidia Corporation remains widely held among hedge funds. According to Insider Monkey’s database, 275 hedge funds held stakes in NVDA, up from 264 in the previous quarter. Mega-cap peer Meta Platforms Inc. who is also heavily investing in AI infrastructure is slightly behind yet maintains substantial exposure with 262 hedge fund holdings, up from 256 in the prior quarter.
The numbers suggest that despite growing concerns about the returns on massive AI spending, hedge funds continue to maintain substantial exposure to the companies positioned at different ends of the AI buildout. Overall, Nvidia’s financing push is helping expand its role well beyond selling GPUs. However, investors need to watch if the AI chipmaker can eventually support a recurring revenue model.
While we acknowledge the risk and potential of NVDA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVDA and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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