Nvidia and Broadcom are providing hidden financial backstops worth roughly $70 billion for debt deals tied to AI chip purchases, potentially shielding major AI companies from loss if chip demand weakens or customers default.
These "residual value" guarantees don't appear on the chip makers' balance sheets but could materialize as major liabilities if the AI infrastructure market faces stress.
Bond traders are increasingly concerned that characterizing such risks as "not probable" — language companies like Meta use in filings — is insufficient to address the scale of potential exposure.
What happened
Nvidia and Broadcom are providing what's called "residual value" support — financial backstops that don't appear on their balance sheets — for debt deals tied to AI chip purchases by companies like Anthropic and Meta. Nvidia's latest move is poised to provide potentially tens of billions of dollars of this support. These arrangements mean if an AI company stops paying for chips or returns them early, the chip maker absorbs the loss.
Why it matters
The roughly $70 billion in phantom liabilities could materialize "at the worst possible time" for investors, according to bond traders now scrutinizing the deals. For Nvidia and Broadcom, the backstops function as a way to bolster sales to customers and AI firms without taking debt onto their own books — a hidden cost that masks the true risk of the AI infrastructure buildout. If demand for chips weakens or a major customer defaults, these companies could face unexpected losses.
What to watch
These backstops are expected to expand as AI chip debt explodes. The arrangements typically work through a chain in which a special-purpose vehicle borrows money to buy chips backed by a customer's contract payments; if the customer stops paying, assets are leased or sold to cover debt, and any remaining shortfall falls to the chip maker. Investors are examining past Meta and Broadcom deals for clues about how Nvidia will structure its agreements.
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The emergence of residual value guarantees reflects the tension between explosive demand for AI chips and the fragile financial structures being used to fund that buildout. Nvidia and Broadcom are effectively using their strong credit ratings as a subsidy for AI companies' infrastructure purchases, while keeping the associated risk off their own balance sheets. Meta pioneered this approach for its data centers, disclosing in filings that such payments are "not probable" and therefore require no liability reserve. Broadcom extended the model to chip financing for companies like Anthropic, tying its exposure directly to whether customers continue paying.
What troubles bond traders is the scale and timing. With $70 billion in phantom liabilities floating in the market and AI chip debt expected to expand dramatically, the assumption that these risks are remote is increasingly being questioned. The proponents' argument — that chip demand will outstrip supply for years, that debt will be paid down over time, and that tech risk lands on balance sheets of companies with cash to absorb it — may not hold if the AI market faces a demand shock or a major customer defaults. The very fact that companies must explicitly state these risks are "not probable" suggests they are at least conceivable, and conceivable risks backed by tens of billions in hidden exposure can move quickly from theoretical to realized when market conditions shift.
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