Nvidia's new partnerships with financial players help mitigate concerns that the company is too tightly linked to its customers, according to BofA and Morgan Stanley
Nvidia, led by CEO Jensen Huang, announced strategic partnerships for third-party compute financing on Monday.
Some investors have worried about the tight financial relationships between Nvidia and its customers, but analysts say that newly announced partnerships should put those worries to rest for now.
The company (NVDA) announced Monday that it has formed strategic partnerships for "independent compute financing." These are worth more than $500 billion and are meant to support artificial-intelligence infrastructure development over time. Six firms including Apollo Global Management $(APO)$, Blackstone (BX) and Goldman Sachs $(GS)$ will provide the third-party capital, the chip maker said.
That Nvidia is mostly using funding from third parties to invest in AI factories, or large-scale data centers, "should arguably alleviate circularity concerns," Morgan Stanley analyst Joseph Moore said in a note to clients.
Nvidia CEO Jensen Huang said in a post on X that the company could support up to 25% of an investment on a case-by-case basis.
At that level of investment, Moore said the "sophisticated third party investor groups" are calling the shots, which should assuage fears that deals are being "purely driven by circular motivations."
Moore also sees an "obvious potential positive" for Nvidia given its position as a major driver of the AI ecosystem in which the deals will be made. Nvidia said in a press release that the financing platforms, which make its chips and other AI offerings "an investable asset class," will enable "long-duration usage-linked revenue." Moore said that implies deals will be part of Nvidia's previously announced revenue-sharing model, which should allow the company "to drive growth from customers that are likely to remain 100% Nvidia," he said.
Bank of America analyst Vivek Arya shared a similar view that the strategic partnerships look positive for Nvidia, as "the burden sits with the consortium," and not on the company's balance sheet.
Additionally, for computing power to be seen as an investable asset, its "residual value must hold," and Nvidia offers that with its chips, Arya said in a note. Nvidia's graphics processing units are interchangeable and can be used across AI developers, he said, and its CUDA software extends the chips' useful life. Therefore, he sees resale and rental prices for Nvidia's GPUs remaining high.
"This platform cements the CUDA moat while shifting capital risk off [Nvidia] - a structurally bullish setup in our view," Arya said of the announcement. Still, the deals that come from the new partnerships will need real money from real customers, he said.
Nvidia's earnings call later this month could give Wall Street and investors "critically needed assurance on its go-forward role in vendor financing," Arya said, which eats into its free cash flow. In his view, that money could "be better directed to a stock that trades at significantly depressed valuation."
Nvidia's stock was down fractionally on Tuesday afternoon.
Morgan Stanley's Moore said Nvidia's backstop for neocloud providers and sovereign AI, which he views as a credit risk, "is the next big debate for the stock."
-Britney Nguyen
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