Nvidia () announced an agreement with Wall Street heavies, , , , , , and . The six Wall Street firms will arrange more than $500 billion in third-party capital for AI infrastructure. The firms will create funding vehicles that allow investors to invest money directly in AI data centers in exchange for a share of the income those data centers generate. From Nvidia’s perspective, the agreement is very beneficial with little risk. The Wall Street-led financing arrangements provide the big hyperscalers with capital to build data centers at a time when their financial obligations and balance sheets are being more closely scrutinized. The data centers in turn run on Nvidia GPU chips.
Despite the seemingly good news, Nvidia shares fell. The reason is that the press release also mentioned that Nvidia is weighing a $250 billion guarantee on OpenAI’s data-center lease payments and $350 billion in GPU purchase financing. That follows a $500 billion AI buildout tied to SK Group. Some critics argue these deals blur the line between chipmaker and lender and further highlight circular financing concerns, where Nvidia is essentially providing its customers with funds to buy Nvidia chips.
The $500 billion structure involving the six Wall Street firms may ease those fears, since it entails outside capital, not Nvidia’s balance sheet, absorbing the risk. Bear in mind that as financing for AI data centers grows rapidly, it increases one risk for many investors, which Axios summarized well: “if one major company runs into trouble, it could have a ripple effect through the AI ecosystem.” As we wrote recently in Carnage in Hyperscaler Credit Part One and Hidden Debt Part Two, Oracle () is the “one major company” to keep an eye on if this is a concern of yours.
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CPI Update
Wednesday’s July CPI report gave Warsh ammunition to restrain the Fed’s hawkish members. rose 0.1% month over month, in line with the Wall Street consensus. The rose 0.2%, also matching expectations. On a yearly basis, held at 3.4%, unchanged from June’s revised reading. , which strips out food and energy, fell to 2.5% from 2.6%, the lowest reading since March 2021.
The details reinforce the headline numbers. Energy fell 1.5% in July, with gasoline dropping 2.9%, continuing the decline that began as the Iran conflict’s oil premium unwound. Core goods inflation, the tariff-sensitive category we’ve watched closely, increased by just 0.2% following two monthly declines. Shelter, the category that has proven to be sticky at higher-than-market prices, has recently started to catch up to reality. It rose only 0.1% on the month, though it still accounted for roughly two-thirds of July’s modest monthly gain given its outsized weight in the index.
Per CME FedWatch, Wall Street is giving a 50- 50 chance of a hike for the September meeting. In our opinion, that positioning is difficult to square with an economy that just posted a negative July print and a second month in a row of benign inflation. While we are not there yet, continued good news on the inflation front may soon have the market asking whether a softening labor market justifies a cut instead.
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