Nvidia is in early talks to provide up to $250 billion in financing guarantees to help OpenAI lease computing capacity from a planned $500 billion, 10-gigawatt data center facility in Ohio, according to Bloomberg, citing people familiar with the matter. The reported arrangement underscores investor concerns that the AI boom has been supported by circular financing.

The SoftBank-led project is located in southern Ohio and, once fully built, would support 10 gigawatts of computing capacity, roughly equal to the output of 10 large nuclear reactors. The first 800-megawatt phase is targeted for 2028. If completed, the facility would rank among the world’s largest AI infrastructure hubs and would add another major test of whether the industry can keep translating aggressive spending plans into usable capacity at scale.

A potential backstop from Nvidia would help SoftBank secure financing while also supporting future demand for Nvidia’s chips, further highlighting the circular nature of the AI buildout. According to the sources cited by Bloomberg, negotiations between Nvidia and OpenAI are still ongoing and could change at any time.

“While Nvidia's investments and partnerships reinforce confidence in long-term AI buildouts, investors remain concerned about circular financing,” said Gary Tan, a portfolio manager at Allspring Global Investments, as quoted by the media outlet.

The Bank for International Settlements warned last month that a “disappointment in returns could trigger a sudden pullback in financing and turn the capex boom into a protracted investment bust, with potential knock-on effects on financial conditions.” It also said that a “major equity-market correction could have larger macroeconomic consequences today than in the past.”

Against that backdrop, traders will be closely watching this week’s Big Tech earnings for signs on the pace of AI capital spending and, more importantly, whether those investments are beginning to generate adequate returns. Given the heavy concentration of AI stocks in major equity indexes, the results could help determine the market’s next major move, especially if executives offer fresh details on spending commitments, infrastructure timelines, or demand for AI services.

Ed Dowd, writing on the Beyond the Narrative Substack, previously warned that the AI-capex rocket fuel driving markets may be starting to fade. He identified four factors behind the potential inflection point.

By Zerohedge