To understand why Nvidia commands a nearly-$5 trillion valuation is to understand its central role in the AI trade. The company has used its first-mover advantage, immense cash pile, and sheer scale to make itself a major hub within the AI wheel.
It sells GPUs to hyperscalers like Microsoft and Amazon, who then rent Nvidia-powered compute to startups like OpenAI and Anthropic. Nvidia has also invested in many of those startups, giving it exposure to nearly every layer of the AI ecosystem.
Put simply, Nvidia benefits from nearly every stage of AI-infrastructure spending, regardless of which application ultimately wins.
Over the past few days, Nvidia has strengthened that position even further. Here’s a rundown:
July 24: Nvidia announced a $500 billion partnership with SK Group, the parent company of South Korean chipmaking giant SK HynixJuly 24: Nvidia announced a $1 billion investment in Naver as part of a partnership to help build South Korea’s sovereign AI infrastructure.July 26: The WSJ reported that Nvidia is helping back roughly $250 billion in financing for OpenAI’s planned 10-gigawatt AI data center in OhioJuly 26: The WSJ also reported that Nvidia is discussing up to $350 billion in financing to help OpenAI purchase its AI chipsJuly 27: Nvidia deepened its partnership with Safe Superintelligence, the AI startup founded by former OpenAI chief scientist Ilya Sutskever
What a whirlwind. CEO Jensen Huang is always wheeling and dealing.
But the deal spree has some investors worried the AI ecosystem is becoming too circular, raising questions about whether today’s spending reflects genuine demand or simply reinforces itself. Has the AI trade become too interconnected for its own good? The risk when this happens is that if one part of the trade falters, it can drag down the rest.
Right on cue, the market wasn’t impressed. Nvidia fell 5% on Monday, surrendering its title as the world’s most valuable company to Apple.
Meanwhile, derivatives-market activity drove home that investors are feeling skittish about Nvidia’s latest AI obligations. The price of protecting Nvidia debt against default for the next five years spiked the most since the swaps started trading in November, according to Bloomberg data.
For its part, Wall Street seems largely unfazed. Bernstein analyst Stacy Rasgon, who previously warned about circular financing, responded to the deal flurry by reaffirming his buy rating and $315 price target that sees 60% stock upside. At Monday’s close, 78 of the 81 analysts tracked by Bloomberg still rated the stock a buy.
But there are big tests ahead this week for Nvidia and the broader AI trade. Hyperscalers Microsoft, Meta, and Amazon are set to report earnings across a two-day period. Investors will be closely watching their capex guidance, having proven sensitive to heavy spending in recent months. (Just ask Alphabet how their capex forecast was received last week.)
Will Nvidia be insulated by its diversified position at the heart of the AI trade? Or will it feel the residual effect of investor disappointment, since it’s so intertwined with the companies reporting? This is the major tension for Nvidia shareholders this week, since the company itself itself won’t report until Aug. 26.
