Nvidia had a very good quarter and disclosed a very large number on the same afternoon. Record sales of $96.2 billion. Net income of $59.7 billion. The shares jumped 8.7% and added $442 billion of market value in a single day.
The number that deserves your attention is none of those. It is $279 billion.
What Nvidia has promised its suppliers
Nvidia said its commitments to suppliers reached $279 billion in the latest quarter. The quarter before, the figure was $119 billion. That is more than a double in three months.
Most of it is memory. Finance chief Colette Kress said the surge relates primarily to memory, and high-bandwidth memory supply has been extremely tight for the past year.
You can see the squeeze in what the memory makers are spending. Kioxia and Sandisk plan to invest more than $31 billion in Japan through 2032. SK Hynix said it planned about $38 billion to expand in South Korea.
Scarcity costs money. Kress guided gross margin down from 75% to 74% next quarter, then to a range of 71% to 72%, before settling around 72% to 73%.
Chief executive Jensen Huang was cheerful about it. Nvidia has a gigantic supply chain, he said on the call, and it “just need[s] a lot more.” Growth is capped by what he can get, not by who wants it.
The other side of the ledger
Then there is the money pointed the other way.
| The stack of promises | Size |
|---|---|
| Commitments to suppliers, latest quarter | $279 billion |
| Same figure, prior quarter | $119 billion |
| Backstop on an OpenAI data-center lease | $105 billion |
| Residual-value support in a $500 billion financing plan | up to $125 billion |
| Guaranteed sales to cloud customers | $36 billion |
| Data-center leases Nvidia expects to pass on | $20 billion |
Do not add those together. The papers do not, and neither should you. They are different instruments with different triggers.
Residual-value support means Nvidia assures lenders that the assets behind a loan will not fall below a set value. It is a promise about the future price of used chips.
There is one more with no price tag on it. Kress said Nvidia is providing selective credit enhancement for nearly two gigawatts of computing at a frontier AI lab that is not OpenAI. She did not quantify it.
Her reasoning was refreshingly blunt. The big labs, she said, are growing faster than their balance sheets and credit profiles can support.
She also headed off the obvious objection. Nvidia knows, she said, that some will call this “circular financing.” She said the company sees it differently.
Dan Hanbury, a portfolio manager at Ninety One, framed it best. The demand is plainly real, he said, but Nvidia “is increasingly carrying the working capital of its own customer base.”
Worth noting: some of this is already being walked back. Nvidia paused parts of its revenue-share program, the AI Compute Partnership, less than two months after announcing it. Some employees had told customers it might attract antitrust scrutiny.
The company also scaled back the proposed backstop for OpenAI's Ohio project, over concern about how investors would read the liability. A spokeswoman said the model is still in place and still evolving.
The 2001 rhyme
Supplier commitments are wonderful in a boom. They lock up scarce parts and keep the lines moving.
In a bust they flip. They stop being leverage and become insurance for the supplier, paid by the buyer.
Cisco Systems found this out in 2001. When the dot-com bubble burst, demand for its networking gear collapsed and its commitments did not. It negotiated some away and still took a $2.2 billion inventory charge in one quarter.
There is an older rhyme as well. Lucent, spun out of AT&T in the mid-1990s, lent its customers the money to buy its equipment. A 2004 book on the company's demise said vendor financing “opened doors that were shut for a reason.”
Lucent shrank to about a third of its original workforce and merged with France's Alcatel in 2006.
The scale today is different, and so is the credit quality. Nvidia's customers are among the richest companies on earth. Big Tech already carries $904 billion of leases not yet started and $1.52 trillion of purchase commitments tied largely to AI.
The market is not asleep to any of this. Nvidia's price against forward earnings has been hovering near a decade low. Investors are happily paying for the profits and quietly marking down the certainty.
The demand is real. The open question is who is holding the paper if it ever pauses.