Nvidia isn’t too big to fail. But its AI financing web raises the stakes

The swirl of sex-and-spying allegations around Nvidia CEO Jensen Huang is raising a worrying question: Could trouble at the chipmaker spread through the tightly connected financial network Nvidia has built to support the artificial intelligence boom?

Serious problems with Nvidia could do far-reaching economic and financial damage. The company has made hundreds of billions of dollars in financial commitments to other firms to help the industry grow, earning it the nickname the “central bank of AI.” The Federal Reserve and other financial institutions are closely watching the AI buildout to monitor for the possibility that an unexpected event could destabilize the global financial system.

Even back in July Fed officials were discussing the possibility of of a “broad-based repricing of assets” in the event of problems in the AI sector.

A rerun of the 2007-2008 financial crisis isn’t likely, according to analysts and current and former financial officials. Nvidia isn’t “too big to fail in a bank sense at all,” said Sheila Bair, a former government regulator who ran the Federal Deposit Insurance Corp. Unlike a troubled bank, Nvidia isn’t vulnerable to a sudden loss of confidence and would still produce a product customers want to buy even if something went wrong. And its massive equity gives it a cushion.

But regulators need to watch carefully for exposure by the banks and the wider financial system to Nvidia and other firms like it, Bair said.

“Nvidia going down would be a pretty seismic event,” she said.

Investors still have high hopes for Nvidia, which reports earnings on Tuesday. Analysts expect its revenue to more than double in the current fiscal year, and then to roughly double again over the following two years, according to LSEG data. But with Huang under scrutiny by the FBI, Congress, and Nvidia’s board over his relationship with a woman who The New York Times reported was suspected of spying for China, analysts see a wide range of outcomes as suddenly possible, including the potential removal of Huang, who co-founded the company in 1993.

The company didn’t immediately respond to a request for comment. Nvidia’s board has expressed confidence in its CEO.

Nvidia’s stock fell 30% from its Oct. 6 peak through Tuesday’s close, amid a broader reassessment of the AI trade prompted by Democrats’ surprising victory in the Nov. 3 midterms. Its stock recovered Wednesday, rising more than 4% as of midday. Still, people who closely track the financial flows underlying AI say that even sharper losses by Nvidia likely wouldn’t trigger the kind of systemic problems that regulators guard against.

And yet the risks flowing from AI are keeping some finance officials up at night. They are watching for the possibility that many of the factors that have helped the AI boom could reverse…