How do you raise money and what collateral can you use? Gold, physical assets like land, securities and bonds and, now a report highlights, Nvidia GPUs like H100 that are used to train and power generative AI systems such as GPT. Yes, that is right. There are tech companies now which are buying Nvidia graphics and AI chips not just to power the services they offer, but are also using these chips as collateral as they raise more money.

According to a report by the Financial Times, some tech companies like CoreWeave, Crusoe, and Lambda Labs are fuelling the craze for Nvidia chips. Termed Neocloud companies, these are specialised cloud service providers that focus on offering high-performance computing power needed for AI and data-intensive tasks. They are investing heavily in advanced hardware like GPUs to support businesses and researchers developing complex AI models.

According to the Financial Times, these companies are now snapping up loads of Nvidia’s powerful GPUs. In turn, they are also doubling these GPUs as collateral for hefty loans. This has sparked a wild GPU-buying spree fuelled by Wall Street lenders who are eager to invest in the current AI boom.

For instance, the company CoreWeave mentioned above, started out in 2017 hoping to make lots of money by mining cryptocurrency, but it soon switched its focus to AI instead. Now, it’s one of the big names in the neocloud scene, specialising in powering AI tasks with serious hardware. According to the FT report, CoreWeave claims it is the largest private hoarder of Nvidia GPUs across North America, boasting a jaw-dropping stash of over 45,000 of these AI chips. Think of the company as the ultimate GPU collector.

But here’s where things get tricky. The GPU economy is booming so fast that some worry it could lead to risky lending practices and an even tighter Nvidia grip on AI tech. Nvidia, which is worth a whopping $3 trillion, supplies these neocloud companies with GPUs, which then encourages lenders to hand over more cash — so these companies can buy, you guessed it, more GPUs.

Interestingly, as per the report, these neocloud companies are deeply linked to Nvidia, which gives them the GPUs they need to thrive. Reportedly, CoreWeave secured tens of thousands of Nvidia’s H100 GPUs as a “preferred partner” but the company also knows that staying competitive depends on getting Nvidia’s upcoming Blackwell chips too. Nvidia, meanwhile, insists it doesn’t play favourites.

While the buzz around AI chips such as H100 and H200 made by Nvidia continues unabated, experts are ringing some alarm bells. Compared to a year ago, Nvidia is facing renewed challenge from competitors. Many tech giants like Meta are even designing their own AI chips. AMD, an arch-rival to Nvidia and the world’s other big manufacturer of discrete graphics cards, is also stepping up to compete with its own high-powered GPUs. In the middle of all this, as neoclouds companies are dependent on Nvidia’s chips as loan collateral, this setup’s value is no longer that certain. Critics in the industry are now asking if these GPUs, which are being treated like precious assets, will hold value as newer models emerge or if AI spending will start to dip.

https://www.indiatoday.in/amp/technology/features/story/nvidia-chips-are-so-valuable-some-tech-companies-are-using-them-as-collateral-to-raise-billions-in-loans-2628448-2024-11-05