NVIDIA CDS Climb Brings Balance Sheet Risk Into View

Key Moments

Credit Market Reacts to AI Financing Exposure

NVIDIA’s five-year credit default swap climbed to an all-time high of 82 basis points on Monday, July 27. According to ICE Data Services, this was the largest single-day intraday increase since the contract began trading actively in November 2025.

The sharp move followed Bloomberg reports that NVIDIA is negotiating artificial intelligence infrastructure arrangements potentially exceeding $750 billion in value. The reported structures include a $250 billion financing guarantee intended to support OpenAI’s leasing of capacity at a planned data center in Ohio, as well as a separate commitment to help fund $350 billion of OpenAI chip purchases.

Bloomberg, citing unnamed sources, described these discussions as being at an early stage. The Financial Times, referencing its own sources, additionally reported that NVIDIA is playing a key role in a $50 billion lease for a Texas data center that will be powered by NVIDIA chips, with CEO Jensen Huang using the company’s balance sheet to underpin the broader AI computing ecosystem.

Equity Market Hit as NVDA Surrenders Top Valuation Spot

In equity trading on Monday, NVIDIA (NASDAQ: NVDA) shares declined 4.99% to close at $196.51. That drop removed roughly $250 billion from the company’s market capitalization and resulted in NVIDIA losing its position as the world’s most valuable company to Apple. Apple’s market value rose more than 1% on the day to approximately $4.95 trillion.

Pre-market indications on Tuesday pointed to continued weakness, with NVDA shares quoted at $194.84 before the opening bell.

Market Focus on “Circular Financing” Structures

Credit analysts are increasingly focused on what they describe as “circular financing.” Under this model, NVIDIA provides equity capital or debt guarantees to customers such as OpenAI and CoreWeave. Those counterparties then deploy that financing to acquire NVIDIA’s own chips, which may amplify reported demand.

Bloomberg reported that NVIDIA has already disclosed more than $540 billion of such arrangements in 2026 alone, not including the potential new structure involving OpenAI. Both the IMF and the Bank for International Settlements were cited as having identified AI-related circular financing as a broader systemic downside risk.

Daniel O’Regan, Managing Director of Equity Trading at Mizuho, highlighted the recent moves in NVIDIA’s CDS market. “I never looked at NVDA CDS before yesterday… Why would I? It’s NVDA. The largest and most profitable company in the world,” he wrote. “NVDA CDS was ticking around 68 bps on Friday, up from 40 at the beginning of the month. Then it spiked another 10 bps on Monday after the article(s) hit.”

Billy Leung, Investment Strategist at Global X Management, underscored the implications of NVIDIA’s role in financing AI capacity, telling Bloomberg: “Nvidia guaranteeing more of OpenAI’s data center debt deepens vendor financing that’s already under scrutiny. It’s as much a reminder of funding strain in the AI buildout as it is a demand signal.”

AI Buildout Pressures Broader Tech Credit

The reassessment of credit risk is not limited to NVIDIA. S&P Global recently cut Oracle’s rating to BBB-, the lowest rung of investment grade, and Oracle’s five-year CDS widened to 215 basis points. In addition, Alphabet reported negative free cash flow last week for the first time since its IPO, a development linked to AI-related spending.

A FactSet report published on July 23 examined capital expenditure trends across five major hyperscale players – Alphabet, Amazon, Meta, Microsoft, and Oracle. The analysis concluded that combined capex for these companies is projected to exceed $690 billion in fiscal year 2026, implying more than 80% year-on-year growth. FactSet also indicated that free cash flows for most of these firms are expected to move close to zero or turn negative as AI investments are weighted toward the current period.

Summarizing the changing investor focus, Manish Kabra, Société Générale’s Head of U.S. Equity Strategy, stated: “For hyperscale computing companies, it’s CDS, not EPS, that matters now.”

Implications for NVIDIA Valuation and Upcoming Earnings

The growing emphasis on credit and balance sheet exposure represents a significant shift for equity investors who have historically approached NVIDIA primarily as a beneficiary of AI demand. With the CDS market now reflecting heightened concern around financing risk, the framework for valuing NVDA is evolving.

NVIDIA shares are currently trading about 17% below their 52-week peak of $236.54. The next significant event on the corporate calendar is the company’s Q2 FY2027 earnings release, scheduled for after the close on August 26.

Consensus expectations call for earnings per share of $2.08 on revenue of $91.79 billion. Beyond the headline numbers, any management commentary regarding the extent of financing guarantees, customer support structures, or broader balance sheet commitments is likely to be scrutinized by both credit and equity market participants.

NVIDIA has not issued a public statement regarding the reported OpenAI financing proposal, and the specific terms of any potential deal remain unconfirmed.