Nvidia stock falls as reports of circular financing with OpenAI spark concerns over AI demand and valuations.
Nvidia stock tumbled nearly 5% on Monday, causing Apple to surpass it as the world's most valuable public company. The decline was driven by reports that Nvidia is in talks to backstop $250 billion in funding for OpenAI to lease computing power for a US data center project. This arrangement highlights concerns regarding "circular financing," where the chipmaker acts as both a supplier and a major investor in its primary customer. Analysts warn that while these deals can align builders and customers, they may also artificially inflate demand and rely on continuous hype to sustain momentum. The potential guarantee is one of the largest of the kind for the chipmaker. Simultaneously, the sector faced pressure from China's progress in chipmaking equipment and rising concerns over the return on investment for massive AI infrastructure spending. Investors are now awaiting earnings from Microsoft, Amazon, and Meta to see if the increased capital spending on AI infrastructure continues to hold steady.