Nvidia Issues $25 Billion in Corporate Bonds Amid 'Circular Financing' Concerns

Size Increased from $20 Billion on Explosive Demand
FT Highlights 'Circular Financing' Risks

NVIDIA, the dominant force in artificial intelligence (AI) semiconductors, is set to issue corporate bonds worth $25 billion (approximately 34 trillion won). Despite explosive market demand, some on Wall Street have raised concerns that the 'circular financing' structure underpinning the AI ecosystem led by NVIDIA could become a trap for the company if the economy slows down.

Jensen Huang, CEO of NVIDIA. Photo by Yonhap News.

According to the Financial Times (FT) and Bloomberg News on the 15th (local time), NVIDIA will issue $25 billion in AA-rated investment-grade corporate bonds in the U.S. bond market, divided into seven tranches ranging from 2-year to 30-year maturities. This marks NVIDIA's first corporate bond issuance since 2021. The original plan was to issue $20 billion, but the company increased the size after orders exceeded $85 billion.

Following a peace agreement between the United States and Iran, expectations for the reopening of the Strait of Hormuz have led to a drop in oil prices and a rally in the bond market, enabling NVIDIA to raise capital at relatively low cost. The spread for long-term (10-year maturity) bonds has also narrowed compared to initial guidance. According to Bloomberg, NVIDIA's free cash flow (FCF) for fiscal year 2027, ending in January next year, is expected to exceed $200 billion.

Bloomberg anticipates that the proceeds from this bond issuance will be used as aggressive investment capital to further expand the AI ecosystem. NVIDIA serves as a key investor in the AI industry. It is reported that the company has invested in or committed to invest over $90 billion in total in OpenAI, Anthropic, and xAI, among others. NVIDIA has also provided financial guarantees for some clients.

In the market, the structure in which NVIDIA invests in AI companies, and those companies in turn purchase NVIDIA's graphics processing units (GPUs), thereby boosting NVIDIA's sales, is referred to as 'circular financing.' Some have expressed concerns that if the AI market stagnates, both the invested companies and NVIDIA could be exposed to risks simultaneously.

If AI companies face difficulties in raising funds, GPU orders may decline, leading to a slowdown in NVIDIA's sales. At the same time, the value of NVIDIA's equity investments could fall and its financial guarantee obligations could increase. As a result, the FT analyzed that NVIDIA is not only the biggest beneficiary of the AI industry, but could also become the focal point where risks across the entire AI ecosystem are concentrated.

This content was produced with the assistance of AI translation services.