Lucent Technologies was spun out of AT&T in the mid-1990s. Deregulation had created a crowd of small new telecom operators. They wanted Lucent’s equipment. They could not always pay for it.
So Lucent lent them the money. It also guaranteed loans those customers took from other lenders. Sales went up, which is what sales do when the seller supplies the funds.
The part the SEC objected to
Lucent also made off-the-books guarantees to the distributors who resold its products. It agreed to buy back any unsold equipment from them. Then it recorded those distributor shipments as revenue anyway.
The SEC filed a complaint in 2004. The matter ended in a settlement. Financial engineering, as the Journal put it, was a major reason the company came apart.
Lucent shrank to roughly one-third of its original workforce. In 2006 it merged with Alcatel of France. Writing in 2004 about the collapse, Lisa Heffernan said vendor financing “opened doors that were shut for a reason.”
Now count the guarantees
Nvidia is not Lucent. It is far stronger financially, and chip supply is not expected to catch up with demand for another year or two. The Journal made that point itself. Hold it in mind while you read the ledger.
| What Nvidia has agreed to stand behind | Amount |
|---|---|
| Backstop on an OpenAI data-center lease in Ohio | $105 billion |
| Residual-value support in a chip-financing plan | up to $125 billion |
| Guaranteed sales for cloud companies | $36 billion |
| Data-center leases it expects to transfer onward | $20 billion |
| Minimum revenue guaranteed to Sharon AI | $4.9 billion |
| Equity stakes in cloud firms and AI labs | $72.5 billion |
| Cash and marketable securities on hand | $80 billion+ |
The lease and residual-value pieces alone could put Nvidia on the hook for some $230 billion. That total leaves out last year’s agreement to buy unsold cloud capacity from CoreWeave inside a $6.3 billion deal.
Why reach down to smaller customers? Because the big ones are running out of financial steam. Yields on AI-linked Big Tech bonds are climbing on sheer supply. Those companies already carry $904 billion of leases not yet started and $1.52 trillion of purchase commitments tied largely to AI.
Chris Caso of Wolfe Research asked the question that matters. Is this simply how data centers get financed now, with the chip maker providing the backstop?
Paused, and a second warning from 2001
Then came the turn. The Aug. 28 Journal reported that Nvidia paused some deals in the new financing program, the one offering credit support to cloud providers in exchange for a share of revenue.
Some employees had raised concerns to customers that the program could draw antitrust scrutiny. Others pointed to how much the company could dictate the way customers run their businesses. Nvidia stepped back less than two months after announcing it.
It also scaled back the proposed backstop for the Ohio project, amid worry about how investors would react to the liability. A spokeswoman said the July business model is still in place and still evolving. Fair enough. The first version had already rankled some potential partners over how much control it wanted.
There is a second, cheaper history lesson here. Nvidia’s commitments to suppliers reached $279 billion in its latest quarter, more than double the $119 billion of the quarter before, mostly memory. Cisco made the same kind of promise before 2001. When demand for its networking gear collapsed, it was still obligated to its own suppliers, and it took a $2.2 billion inventory charge in a single quarter.
One number cuts the other way, and it deserves saying. Nvidia’s price against forward earnings has been hovering near a decade-long low. The stock is not obviously expensive. It is obviously complicated.