Chip stocks had a rough week, and the trouble didn’t start at a chipmaker. A spike in the bond yields of CoreWeave, a cloud provider that rents out AI computing power, revived worries about debt-heavy AI customers and dragged semiconductor shares lower, according to Yahoo Finance. Nvidia (NASDAQ:NVDA), both an investor in CoreWeave and its chip supplier, slipped with the group.
Nvidia designs the processors and networking gear that train and run AI models, and sells them as complete data center systems to cloud giants, AI labs, and specialists like CoreWeave. Gamers know it for its graphics cards, but data centers now bring in the vast majority of its revenue.
So the selloff raised a sharp question: is Nvidia’s growth only as sturdy as the balance sheets of the companies buying its chips? The answer depends less on one cloud provider than on who else is paying.
A Supplier With Software-Like Margins
Whatever its customers are doing, Nvidia itself is enormously profitable. Over the past 12 months, it earned $192.88 billion in net income and kept about 65% of its sales as operating profit. Those margins come from pricing power: buyers pay up because Nvidia sells the chips, the networking, and the software developers already build on.
That edge has compounded for years, with revenue growing about 66.9% a year over the past five years. AI spending has been the common thread for the wider chip group covered in 12 Best Performing Semiconductor Stocks to Invest In.
Demand Is Coming From More Directions
The latest results show the moat widening. In its fiscal second quarter of 2027, revenue reached $96.2 billion, up 106% from a year earlier, and data center revenue rose 117% to $89.0 billion. Management guided third-quarter revenue to $108.0 billion, plus or minus 2%, without counting on any data center compute sales in China.
The customer list argues against a single point of failure. The new Vera Rubin platform is in full production at partners including Microsoft Azure, Google Cloud, and Oracle, not just CoreWeave, and CEO Jensen Huang said in the release that a broader base of AI labs and startups is scaling at the same time. Nvidia is also lining up outside money: financing platforms with firms including Apollo, BlackRock, and KKR aim to mobilize more than $500 billion in third-party capital, subject to final agreements. The buildout behind those orders runs well beyond chips, into the names in 15 Best Data Center Stocks to Buy and Hold for the Next Decade.
What Happens if the Borrowers Run Out of Room?
That financing push cuts both ways, and it’s the heart of the bear case. Specialist providers like CoreWeave are building AI capacity with borrowed money, and Nvidia sits on both sides of some of those deals, as supplier and investor. This week, CoreWeave’s debt load and the prospect of higher interest rates were enough to shake the whole chip group, according to Yahoo Finance.
Huang pushed back at a Bloomberg event in Stockholm, saying CoreWeave’s position is strengthening and its cost of capital is falling, according to Yahoo Finance. Still, a credit squeeze would hit the most leveraged buyers first, and it would show up as softer orders long before it touched Nvidia’s margins. For now, the guidance points the other way.
A Discount That Already Prices In the Fear
The market has marked the stock down for exactly this risk. Nvidia trades at about 23 times estimated fiscal 2027 earnings, roughly 45% below its five-year average of about 42 times, and only modestly above the technology sector’s median of about 21 times.
That small premium is the striking part, given that analysts’ consensus expects earnings per share to grow about 95% this fiscal year. The five-year average was set when investors paid ahead for growth that hadn’t arrived; now the earnings have arrived, and the multiple has fallen to meet them. Investors hunting for AI exposure at a lower price have a wider set to weigh in 10 Undervalued AI Stocks to Buy Now.
The multiple rests on adjusted earnings, which came in below GAAP earnings last quarter, so it isn’t flattering the picture. What the price does assume is that growth slows sharply after this year, or that the financing chain behind AI spending breaks.
Nvidia’s Real Test Is Its Customers’ Credit
The evidence points to a valuation reflecting financing fears more than any crack in the business. For investors who can sit through sharp swings in chip stocks and are looking several years out, the setup looks stronger than the selloff suggests. A guidance cut tied to customers pulling back on borrowed spending, or financing platforms that fail to reach final agreements, would change that picture quickly.
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This article is originally published at Insider Monkey.
