Nvidia Shares Plummet 5% Amid Reignited "Circular Trading" Concerns

Nvidia shares plummeted sharply as concerns over "circular trading" were reignited following reports of loan guarantees and large-scale partnerships and investments involving OpenAI.

Nvidia closed down 4.99% at $196.51 on the 27th, local time.

This marks the steepest daily drop since June 5.

The company also lost its top spot as the world's most valuable company by market capitalization to Apple.

The cost of credit default swaps (CDS), which hedge against Nvidia's potential default, surged by a record 0.82 percentage points, jumping 0.14 percentage points annually.

The plunge in share prices was triggered by news that Nvidia is pursuing new AI deals valued at over $750 billion, equivalent to more than approximately 1,100 trillion won.

The Wall Street Journal (WSJ) reported the previous day that Nvidia is discussing providing up to approximately 366 trillion won in loan guarantees for OpenAI's long-term lease of a 10-gigawatt (GW) data center being built in Ohio by SB Energy, a subsidiary of SoftBank Group.

The total cost of this project is estimated to exceed $500 billion, including the cost of AI chips to be deployed.

WSJ added that Nvidia's loan guarantees could help SB Energy secure better terms in debt financing to build the data center.

Bloomberg reported that Nvidia is also discussing supporting the purchase of approximately 513 trillion won worth of Nvidia chips to be deployed in this data center.

Nvidia also announced a partnership with the SK Group valued at approximately 733 trillion won, which was unveiled on the 25th.

Nvidia explained that this cooperation includes a partnership with SK Telecom to build a 2GW data center in South Korea and a long-term supply contract for AI memory chips with SK Hynix.

In addition, Nvidia is reportedly set to invest about 7.3 trillion won in Safe Superintelligence, founded by Ilya Sutskever, former chief scientist at OpenAI.

Market skeptics are warning about the "circular" structure of such transactions.

Investor Michael Burry, famous for "The Big Short," criticized the move on social media following reports of the loan guarantee discussions, posting, "Round and round it goes."

Burry has reportedly increased his short positions on companies such as Nvidia and Micron recently.

Critics argue that as the structure of Nvidia funding and taking stakes in companies and projects that use its chips repeats, industry demand and valuations are being artificially inflated.

Google's guarantee of Anthropic's data center rent, which effectively produced a loan effect of about 51 trillion won, is cited in a similar context.

Gary Tan, a portfolio manager at Allspring Global Investments, said, "While Nvidia's investments and partnerships support confidence in long-term AI infrastructure, investors remain concerned about circular trading."

Billy Leung, an investment strategist at Global X Management, also pointed out that "Nvidia guaranteeing OpenAI's data center debt is a demand signal, but it also signals the financial pressure involved in building out AI."

Critics also note that as various AI companies become increasingly entangled through these deals, the entire industry faces a growing risk of exposure to systemic shocks.

A prime example is SoftBank pledging to invest approximately 95 trillion won in OpenAI alone by October, utilizing a bridge loan of about 59 trillion won for the purpose.

(Photo: AP, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.