Nvidia turns to insurers to spread the risk of AI build-out

Nvidia, the leading chipmaker, is exploring insurance options to mitigate the financing risks associated with its AI chip build-out, according to a report by the Financial Times. The discussions involve potential insurance coverage for loans given to smaller "neocloud" companies that use Nvidia's chips as collateral. If a borrower fails to repay the loan and the pledged chips cannot be resold for sufficient funds to cover the debt, the insurance could protect the lenders.

These talks are still in the early stages and may not lead to any deals. This strategy aligns with Nvidia CEO Jensen Huang's strategy to make chips and AI infrastructure more accessible for outside investors to finance. Huang has previously argued that chips should be considered an "investable asset class" similar to other expensive, long-lived technology assets.

Nvidia has provided data to at least one insurer, including information on chip depreciation and the anticipated future value of computing power. The potential insurance structures could extend beyond traditional insurers, potentially involving hedge funds and other alternative investors. Nvidia has also contemplated joining consortia with insurers, hedge funds, and asset managers.

This insurance push follows Nvidia's offer to backstop part of financing deals that aim to unlock $500 billion of capital from Wall Street firms. Additionally, Nvidia recently announced a record $150 billion share buyback.