Nvidia to Promote 'AI Chip Collateral Loan' Insurance…Diversifying AI Infrastructure Risk

"Nvidia to Promote 'AI Chip Collateral Loan' Insurance…Diversifying AI Infrastructure Risk"

FT, following Wall Street, also attracts insurers…"AI chips are an investable asset class"

Nvidia has discussed with the insurance industry a plan to transfer the risk of default on loans collateralized by its artificial intelligence (AI) chips to insurers, the Financial Times (FT) reported on the 28th (local time), citing sources.

According to the report, Nvidia proposed various structures to insurers to transfer part of the financial risk of AI chips to insurers and other investors.

One of the options under discussion is insurance that guarantees loan losses for new cloud companies called 'NeoCloud'.

This is in preparation for cases where these companies default on their debts and cannot repay the loans even if the Nvidia chips held as collateral are sold.

Such guarantees could allow more funds to flow to customers whose financial structures are not as robust as those of big tech companies.

This is interpreted as an intention to diversify the risks of building AI infrastructure by partnering with Wall Street financial firms to directly guarantee customer financing, and now bringing in insurers.

Sources said Nvidia is developing such a structure with insurance broker Howden. Data on chip depreciation and future computing price forecasts have been shared with at least one insurer.

Since the transaction size could exceed the capacity of large insurers, a plan to distribute the risk to alternative asset investors such as hedge funds through insurers was also considered.

However, discussions are in the early stages.

Last month, Nvidia launched a $500 billion (approximately 677 trillion won) AI computing financial platform with Wall Street financial firms such as Goldman Sachs and Apollo, and has already committed to guaranteeing some transactions.

It also guaranteed a $105 billion (approximately 142 trillion won) lease agreement for OpenAI's data center construction.

The FT reported that Nvidia told investors that a quarter of its revenue next year is expected to come from AI companies it financially supports.

In the insurance industry, so-called 'residual value insurance' has also emerged, which guarantees against the decline in chip value.

Quentin Salo, CEO of ForwardCompute, said, "Using insurance, even small NeoClouds can compete with Amazon and Google."

The key is the rate at which chip values decline.

Asset valuation firm BarkerAI, in an upcoming study, estimated the current value of Nvidia's H100 system (8 GPUs) released in 2022 to be approximately $320,000 (approximately 430 million won). This is similar to its value at launch due to supply shortages.

However, it predicted that once supply catches up with demand, only about two-thirds of its value will remain after one year, and it will drop to about $30,000 (approximately 40 million won) after six years.

Nvidia stated in a statement sent to the FT that "AI infrastructure is an investable asset class because it is uniquely productive, durable, and replaceable."

CEO Jensen Huang has also emphasized that chips should be treated as 'investable assets' that are expensive and have a long lifespan, much like aircraft.