In 1970, Ginnie Mae first introduced the concept of a mortgage-backed security (MBS), a financial asset backed by a pool of mortgages that serves as collateral and passes its cash flows to investors.
It marked the birth of asset-backed securitization, which would spread to a wide range of assets, including auto loans, personal loans, student loans, and a broad swath of commercial loans.
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Now, Nvidia (NASDAQ: NVDA) CEO Jensen Huang has a bold plan to launch what essentially amounts to chip-backed securities, with the collateral being graphics processing units (GPUs).
Huang is planning to partner with major Wall Street firms to create these financial instruments to continue fueling the AI build-out. What could go wrong?
Turning to private credit
Thus far, much of the AI build-out has been made possible by the hyperscalers' balance sheets. Companies like Microsoft, Alphabet, Amazon, and Meta Platforms have long been cash-generating machines.
But in recent years, they've depleted much of their free cash flow, raised equity, and turned to debt to fund what looks set to surpass $700 billion in capital expenditures this year, with plans to ramp that higher next year.
Now, Huang and a group of top private credit players on Wall Street, including Goldman Sachs (NYSE: GS), BlackRock, Blackstone, KKR, Apollo, and Brookfield, are teaming up to potentially find the necessary funding for the continued build-out.
While still in its infancy, the plan is for Nvidia to partner with these firms to raise $500 billion in capital that key stakeholders in the AI ecosystem could tap to keep building data centers and purchase the necessary equipment that makes the data centers operational.
AI labs, enterprises, and AI cloud players would be able to obtain this capital at attractive rates, according to a press release from Nvidia. And while the concept isn't fully fleshed out, it sounded like the capital would be raised from investors who buy securities backed by the GPUs in data centers.
"You can think about it as a revenue stream, and you can securitize it or effectively divide that risk and sell it to investors who want to participate anywhere in that stack," Waldemar Szlezak, KKR's head of digital infrastructure, said during a CNBC panel.