Nvidia's role as the central bank of the AI boom

The central bank of AI

Nvidia has established a vast network of investments, loans, and guarantees to support the infrastructure of the artificial intelligence revolution. The company holds stakes in major developers like OpenAI, Anthropic, and Elon Musk’s xAI. It also backs 'neocloud' companies like CoreWeave and Nebius, which provide computing power using Nvidia's hardware.

As reported by The Straits Times, this strategy has turned the chip giant into what some analysts call the central bank of the AI boom. By funding the very companies that need its processors, Nvidia ensures a steady stream of demand for its data centers. This move has helped solidify its position as the world’s most valuable company by market capitalization.

The company's reach extends globally, from backing French developer Mistral to partnering with South Korea’s SK Group. These deals are designed to keep the AI ecosystem moving forward by providing capital to firms that might otherwise struggle to find funding. It effectively makes Nvidia the primary financier of the current technological shift.

Why Nvidia is playing banker

Experts suggest that Nvidia’s massive profits leave it with few options other than reinvesting in the AI infrastructure. By channeling money into these projects, the company avoids competing directly with its biggest customers. If Nvidia were to build its own data centers, it could face significant antitrust complaints for competing against the firms it supplies.

Nvidia's investments also serve to fill specific funding gaps in the market. Because frontier AI labs require tens of billions of dollars to get started, Nvidia’s capital gives these startups more time to succeed. This approach allows the company to identify and support parts of the ecosystem that are currently underfunded.

The company also acts as a customer of last resort through various financial backstops. For example, Nvidia committed to buying up to US$6.3 billion of unused computing capacity from CoreWeave if no other customers take it. These guarantees provide a safety net for infrastructure providers, ensuring that the hardware remains utilized even during fluctuations in demand.

The risk of circular financing

Critics on Wall Street are raising concerns about whether these deals are creating a 'circular' financing loop. This occurs when a company inflates its growth by investing in startups that then use that money to buy the original company's products. While not inherently wrong, these close relationships make it difficult for observers to judge the true level of sustainable demand.

Some analysts argue that not all demand is created equal. If Nvidia provides money to a neocloud company that then spends it on Nvidia chips, it may not be as healthy as a sale to a company with an end-user ready to pay for the service. The concern is that these investments might be delaying the inevitable moment when the market must prove its own profitability.

The concentration of revenue also poses a significant risk to the company's stability. Two direct customers accounted for 22% and 14% of Nvidia’s revenue in its 2026 fiscal year. This high level of dependency means that any major shift in the spending habits of a few large players could have a disproportionate impact on Nvidia's bottom line.

Potential for market contagion

The interconnected nature of these investments creates a risk of contagion if the AI market experiences a downturn. If demand for AI services weakens, spending cuts could hit chipmakers, data center builders, and their financiers all at once. This interconnected web means that a failure in one area of the ecosystem could quickly spread to others.

Signs of market tension have already appeared in recent months. Shares of several Nvidia-linked neocloud companies, including CoreWeave and Nebius, fell by at least 30% in October. These losses were driven by worries that credit for AI projects might become tighter as the initial hype faces scrutiny.

Despite these concerns, some experts believe the demand for Nvidia's hardware will remain strong for several years. Estimates suggest that the market for AI chips will remain limited by supply for another 12 to 18 months before leveling off. For now, the company's role as a financier remains a core part of its strategy to maintain its dominance in the hardware space.