Nvidia Stock Falls 5% on OpenAI Financing Fears

Key Takeaways

• Nvidia shares fell 4.99% to $196.51, erasing approximately $250 billion from the company’s market value.
• A potential $250 billion financing guarantee for an OpenAI-linked data centre raised concerns about circular financing and the sustainability of AI infrastructure spending.
• Nvidia’s fundamentals remain strong, supported by record data-centre revenue and fiscal second-quarter revenue guidance of approximately $91 billion.

Nvidia Stock Drops Below $200 as Financing Concerns Grow

Nvidia stock suffered a sharp decline at the start of the week as investors reassessed the financial risks surrounding the rapid expansion of artificial intelligence infrastructure.

The shares closed 4.99% lower at $196.51 on Monday, July 27, reducing Nvidia’s market capitalisation by approximately $250 billion. Apple consequently overtook Nvidia as the world’s most valuable listed company, ending the session with a market value close to $5 trillion.

The decline was widely reported on July 28, but the 4.99% fall and $196.51 closing price occurred during the previous US trading session. Nvidia stabilised on Tuesday, briefly falling to around $192.74 before closing close to $197, suggesting that buyers were willing to enter near the stock’s 200-day moving average. Historical market data showed that the rebound remained limited, however, with the stock still trading below the psychologically important $200 level.

The sell-off followed reports that Nvidia was discussing a financial guarantee of roughly $250 billion to support OpenAI’s participation in a proposed data-centre project in southern Ohio.

The 10-gigawatt campus is being developed by SB Energy, a subsidiary of SoftBank. The entire project could cost more than $500 billion once construction, power infrastructure and computing equipment are included. Nvidia’s proposed guarantee would support lease payments and debt financing rather than directly covering the GPUs installed inside the facility.

Separate discussions could involve financing as much as $350 billion of OpenAI’s future chip purchases. None of the proposed arrangements has been finalised, leaving considerable uncertainty over Nvidia’s eventual financial exposure.

Why the OpenAI Deal Raised Circular Financing Fears

The size and structure of the potential commitment unsettled investors because Nvidia would be supporting the financing of a project that is expected to become a major buyer of its own products.

In simple terms, Nvidia could use its balance sheet to help OpenAI secure computing capacity, while the data-centre operator would use part of the resulting capital to purchase Nvidia GPUs. This arrangement could strengthen long-term demand for Nvidia hardware, but it also makes it more difficult for investors to distinguish between demand generated by end users and demand supported by Nvidia’s own financial commitments.

That relationship has revived comparisons with the circular financing arrangements seen during the dot-com era. In those cases, technology suppliers sometimes financed customers that subsequently used the money to purchase the suppliers’ products. Revenue initially appeared strong, but the model became vulnerable when customers failed to generate enough cash to meet their obligations.

The comparison does not mean Nvidia faces the same outcome. The company is highly profitable, generates substantial cash flow and remains the leading supplier of AI accelerators. Nevertheless, the proposed guarantee is unusually large, even relative to Nvidia’s multi-trillion-dollar valuation.

OpenAI also remains unprofitable despite its rapid revenue growth and reported valuation of more than $850 billion. That gap between ambitious infrastructure commitments and present cash generation is becoming an increasingly important issue for investors as spending on AI data centres continues to accelerate.

Credit Markets Signal Greater Concern About AI Debt

The equity-market reaction was accompanied by a sharp move in Nvidia’s credit default swaps. These instruments measure the cost of insuring a company’s debt against default and are often used as a real-time indicator of perceived credit risk.

Nvidia’s five-year CDS spread reportedly climbed to a record level near 82 basis points during the market turmoil. The increase does not suggest that the company is in immediate danger of default. Instead, it shows that lenders and credit investors are demanding more compensation for the possibility that Nvidia could take on substantial contingent liabilities.

The move is particularly notable because Nvidia’s core balance sheet remains strong. The market’s concern is therefore focused less on existing debt and more on the scale of future commitments connected with OpenAI, AI cloud providers and large data-centre projects.

Broader AI spending is expected to exceed $700 billion in 2026, with an increasing share financed through bonds, loans, leases and private credit. If AI companies cannot produce sufficient revenue from that infrastructure, the financial pressure could spread from smaller cloud providers to chip suppliers, utilities and data-centre developers.

Asian Semiconductor Rout Adds Pressure

Nvidia’s decline also came during a wider correction across global semiconductor stocks.

South Korea’s Kospi suffered a double-digit fall on July 28 as Samsung Electronics and SK Hynix recorded steep losses. SK Hynix dropped nearly 15%, while Samsung declined more than 13%, reflecting concerns about AI infrastructure funding, elevated chip valuations and growing competition from Chinese semiconductor manufacturers.

Japanese technology shares were also hit, with memory producer Kioxia and semiconductor-equipment companies falling sharply. In the United States, Micron, AMD, Broadcom and several data-storage stocks joined the sell-off.

The weakness followed signs that China is making progress in domestic memory-chip production and semiconductor equipment. The successful market debut of Chinese memory producer CXMT intensified fears that lower-cost Chinese suppliers could eventually pressure pricing and profit margins across the global chip industry.

These developments created an unfavourable combination for Nvidia: questions about how AI demand is being financed emerged at the same time as investors became more concerned about competition and the sustainability of semiconductor valuations.

Nvidia’s Fundamentals Remain Strong

Despite the market pressure, Nvidia’s operating performance continues to support a more constructive long-term outlook.

The company generated record fiscal first-quarter revenue of $81.6 billion, representing annual growth of 85%. Data-centre revenue rose 92% to $75.2 billion as demand for Blackwell systems, networking products and accelerated computing remained strong. Nvidia’s latest financial results also included an additional $80 billion share-repurchase authorisation.

Management expects fiscal second-quarter revenue of approximately $91 billion, plus or minus 2%. That forecast exceeded the market estimate of roughly $86.8 billion when it was released, demonstrating that demand from hyperscale cloud providers and AI-focused infrastructure companies remains robust.

Several analysts have maintained bullish ratings despite the share-price decline. Needham retained a buy rating and a $270 price target, supported by expectations that Nvidia could ship around 91,000 Vera Rubin racks in 2027. The next-generation platform is expected to strengthen the company’s position across AI training, inference and data-centre computing.

The central question is therefore no longer whether Nvidia can generate rapid revenue growth. Investors are increasingly focused on how much financial support is required to sustain that growth and whether Nvidia’s customers can earn sufficient returns from their infrastructure spending.

Conclusion

Nvidia’s latest decline reflects a shift in investor focus from rapid AI revenue growth to the financial risks behind that growth. The proposed $250 billion guarantee for an OpenAI-linked data centre has raised concerns that Nvidia may be using its balance sheet to support customers that ultimately purchase its own chips, reviving fears of circular financing across the AI industry.

The broader semiconductor sell-off and widening credit default swap spreads added to the pressure. However, Nvidia’s underlying business remains strong, supported by record data-centre revenue, continued demand for its AI systems and fiscal second-quarter revenue guidance of approximately $91 billion.

The key issue is whether OpenAI and other AI infrastructure customers can generate sufficient returns to support increasingly large capital commitments. Until investors receive greater clarity on the proposed financing arrangements, Nvidia stock may remain sensitive to developments in AI spending, credit markets and upcoming earnings from major cloud-computing customers.