The world's most valuable chipmaker agrees to guarantee up to US$105 billion of its biggest customer's rent. If the customer cannot pay, the chipmaker pays the landlord, and the customer uses the building to buy more of the chipmaker's chips.
On August 17, 2026, Nvidia did exactly that for OpenAI. Markets immediately priced the structure for what it was: the supplier financing its own demand. This is the plain-English explainer of the "circular AI economy", its dot-com echo, and why Canadian pension money is inside the circle.
This post is for informational purposes only and is not financial advice. Figures are in US dollars unless noted and are current as of October 2026. Investment rules, account types (RRSP, TFSA) and tax treatment discussed here apply to Canada.
Key takeaways
- On August 17, 2026, Nvidia finalized a guarantee of up to US$105 billion backing OpenAI's 20-year Ohio data center leases, about 35 percent of Nvidia's trailing revenue.
- The guarantee is conditional, paying only on OpenAI default or insolvency, and falls away if OpenAI earns a solid credit rating. But Nvidia's revenue now depends on financing its own customer.
- This is vendor financing, the same structure that amplified the telecom crash of 2000, when Lucent's US$8.1 billion in customer financing (about 24 percent of its revenue) turned into billions in write-offs.
- Ares Management mapped about US$573 billion across 26 interconnected AI financings, tying together Meta, Oracle, Microsoft, Amazon, Google, Nvidia, OpenAI and Anthropic; Michael Burry flagged it on September 28, 2026.
- CPP Investments has US$1.75 billion (about C$2.4 billion) in EQT's AI infrastructure strategy and US$300 million in xAI debt, putting Canadians' pensions inside the financing web.
What "circular" means, in plain English
A circular deal: Company A sells chips to Company B, which cannot afford them alone. So A lends B the money, guarantees B's lease, or buys equity funding the purchase. B buys A's chips; A books the revenue. All legal and disclosed. The skeptics' question: would B buy at this scale without A's help? If not, A's growth is partly A buying from itself, which works until spending pauses, when revenue and credit exposure fail together.
The bull case: Nvidia's CEO says this is a prudent use of scale, with OpenAI obligated to reimburse anything Nvidia pays. If OpenAI thrives, Nvidia never loses a dollar. The disagreement is about the bad scenario, not the good one.
The $105 billion deal, step by step
A September 2025 letter of intent promised up to US$100 billion as 10 gigawatts deployed; summer 2026 reports floated US$250 billion. What shipped August 17, 2026 was smaller and more conditional.
On August 17, 2026, Nvidia filed a Form 8-K with the SEC, signed by CFO Colette Kress, detailing "residual value guaranties" of up to US$105 billion. Here is the structure:
- The site: a planned 8-gigawatt campus in Pike County, Ohio (the former Portsmouth Gaseous Diffusion Plant), built by SoftBank-owned SB Energy. OpenAI holds a 20-year lease; the first 800 megawatts come online in 2028.
- The guarantee: Nvidia backstops leases covering about 4.25 gigawatts initially, with an option to extend support to roughly 3.8 more gigawatts. Its cumulative payment obligation is capped at US$105 billion.
- The trigger: Nvidia pays only on OpenAI default or insolvency, covering the shortfall between a guaranteed minimum lease value and what the developer recovers.
- The off-ramps: obligations end if OpenAI earns a satisfactory credit rating, terminates a lease, or at each lease's 20th anniversary; OpenAI must reimburse anything Nvidia pays.
- The equity kicker: alongside the guarantee, Nvidia is investing US$1.5 billion directly in SB Energy and will be the site's exclusive AI compute provider.
US$105 billion is about 35 percent of Nvidia's US$303 billion trailing revenue and 1.8 times a quarter's net income: a contingent obligation that never touches earnings unless triggered. Standard accounting; real but invisible exposure.
Ohio is not the only loop. Nvidia holds roughly US$2 billion of CoreWeave equity, sells it most of its chips, and must buy up to US$6.3 billion of unsold capacity through 2032 if demand falls short; CoreWeave's Q1 2026 free cash flow was negative US$4.71 billion. Nvidia is supplier, shareholder and buyer of last resort at once. See our AI chip war breakdown for the demand side.
The Lucent precedent: this movie has played before
The telecom bust of 2000 ran the same playbook. Lucent's fiscal 2000 report showed about US$6.7 billion in customer credit commitments plus US$1.4 billion in debt guarantees: US$8.1 billion total, roughly 24 percent of its US$33.8 billion revenue. Nortel ran a comparable US$1.4 billion program, sometimes financing 130 percent of the equipment price.
Lucent's US$2 billion WinStar commitment ended in bankruptcy and a US$700 million write-off. Portfolio-wide it took US$2.2 billion in bad-debt provisions in 2001 and US$1.3 billion in 2002, as revenue fell from US$33.8 billion to US$12 billion. Nortel fell from C$398 billion to under C$5 billion, covered in our Nortel piece.
The parallel is not perfect. Lucent's customers were thin startups banks had rejected; OpenAI closed a US$122 billion round in March 2026 at a US$852 billion valuation and generates real, growing revenue. But the structural point survives: when the supplier guarantees the customer, a downturn hits twice, in lost sales and triggered guarantees. Ares made exactly this comparison, warning of a chain reaction like the vendor financing that amplified the 2000 telecom downturn.
The $573 billion web Burry flagged
Ares Management's Fall 2026 newsletter mapped about US$573 billion across 26 financings over the prior 12 months: bonds, construction loans, leases, GPU-backed borrowing and guarantees. Meta, Oracle, Microsoft, Amazon, Google, Nvidia, OpenAI and Anthropic each play different roles, as borrowers, customers, suppliers, tenants or guarantors.
On September 28, 2026, Michael Burry flagged it as "can't-wait info." Ares's warning: every deal assumes AI spending never slows; if revenue disappoints, guarantees trigger precisely when guarantors are weakest. Burry, short Nvidia, Oracle, Palantir, Micron, CoreWeave and Nebius since Q3 2025, says the financing web, not the technology, is where the cycle breaks. See our AI bubble vs 2008 comparison for the scenarios.
Credit markets are asking questions stocks are not. Oracle's five-year CDS spreads hit record levels in September 2026, above their 2008 peak. US$18 billion in Project Jupiter loans traded at 89 to 91 cents on the dollar. Nvidia's CDS trading volume rose tenfold in six months. None of this proves a crisis; all of it says the people paid to measure default risk are more nervous than equity buyers.
Your pension is inside the circle
CPP Investments, steward of the Canada Pension Plan's roughly C$793 billion, is in the web: US$1.75 billion (about C$2.4 billion) to EQT's AI infrastructure strategy via EdgeConneX in July 2026, plus US$300 million in xAI debt for a Memphis data center in August (see how CPP is investing in AI data centers). Small positions that may earn their return, but name the exposure: Canadians' retirement savings hold AI credit inside the structure Ares mapped and Burry flagged.
Practical next steps
- Separate the technology from the financing. A new model is technology; a new guarantee is financing. Ask which one each announcement is about.
- Check your bond funds, not just your stock funds. The circular economy lives in credit: corporate bond funds, target-date funds and pension plans. Know what your fixed-income holdings actually hold.
- Distrust "someone else's problem" stories. Every circular structure claims its risk is contained; Lucent's was fine until WinStar. Ask about the bad scenario, not the base case.
- If you own the suppliers, own the loop. Holding Nvidia or the hyperscalers means holding both the AI revenue and the AI credit exposure. Size for the combined risk; our AI stocks guide covers position sizing for Canadians.
- Watch three numbers. Nvidia's receivables and inventory build, Oracle's credit spreads, and any hyperscaler rating action. Stocks tell you what people hope; credit tells you what people fear.
The bottom line
Nvidia's US$105 billion guarantee is legal, disclosed and conditional; in the good scenario it never costs a dollar. But it is vendor financing: the supplier underwriting its own customer's purchases. Lucent's US$8.1 billion version ended in billions of write-offs. Today's version is bigger, more interconnected, and inside Canadian pensions. The circular economy does not need fraud to break. It needs only for the spending to never stop.
Sources
- Nvidia Form 8-K, Aug 17, 2026: residual value guaranties up to US$105B, OpenAI Ohio campus (via Unite.AI, Tech Times, Reuters). https://www.unite.ai/nvidia-guarantees-up-to-105b-for-8-gw-ohio-ai-campus-leased-by-openai/
- Nvidia: OpenAI partnership letter of intent, Sept 22, 2025 (US$100B, 10 GW). https://nvidianews.nvidia.com/news/openai-and-nvidia-announce-strategic-partnership-to-deploy-10gw-of-nvidia-systems
- StockTitan: Nvidia TTM revenue US$303.0B to July 26, 2026. https://stocktitan.net/overview/NVDA/
- Ares Management, Fall 2026 alt-credit newsletter: US$573B across 26 financings (via TradingView, Stocktwits). https://www.tradingview.com/news/stocktwits:b144aaa57094b:0-big-short-michael-burry-drops-can-t-wait-info-on-573b-ai-financing-web-what-happens-if-spending-stops/
- Burry "Short Thoughts," Sept 28, 2026 (via Burry Stock Tracker, MoneyCheck). https://moneycheck.com/michael-burry-warns-trump-administration-must-sustain-ai-growth-to-avoid-economic-collapse/
- The Innovation Attorney: Nvidia's circular financing web; CoreWeave US$6.3B backstop. https://theinnovationattorney.com/nvidias-circular-financing-web/
- aistockwire: Lucent US$8.1B vendor financing (~24% of FY2000 revenue); Nortel US$1.4B. https://aistockwire.com/blog/nvidia-openai-105-billion-backstop-lucent-vendor-financing-august-19-2026
- Lazonick paper: Lucent bad-debt provisions US$2.2B (2001), US$1.3B (2002); WinStar US$700M write-off. https://www.thefreelibrary.com/The+rise+and+demise+of+Lucent+technologies-a0353692807
- CPP Investments (CNW press release): US$1.75B EQT/EdgeConneX commitment, July 2026. https://www.newswire.ca/news-releases/cpp-investments-partners-with-eqt-to-support-global-digital-infrastructure-growth-826226428.html
- NewYorkNow24: CPP Investments US$300M xAI debt, Aug 2026. https://newyorknow24.com/cppibs-investment-in-controversial-ai-firm-sparks-investigation/
- btw.media: Oracle S&P cut to BBB-, July 9, 2026; Project Jupiter loans at 89-91 cents. https://btw.media/en/oracle-financing-stack-effective-conditional-break-points
- Ballad Markets: Oracle 5Y CDS record 227bp; Nvidia CDS volume up tenfold. https://balladmarkets.com/blog/oracle-stock-ai-bubble-credit-market-warning
- Tom Tunguz: Nvidia vs Lucent vendor-financing comparison. https://tomtunguz.com/nvidia_nortel_vendor_financing_comparison/
- TechCrunch: OpenAI in talks to raise $30B at $1.4T valuation, September 29, 2026 (confirms the March 2026 $122B round at $852B valuation). https://techcrunch.com/2026/09/29/openai-reportedly-in-talks-to-raise-30b-round-at-1-4t-valuation/
Quick answers
Frequently asked questions
01
What are circular deals in AI?
Circular deals are arrangements where an AI supplier finances its own customer's purchases, so money flows in a loop: the supplier funds the buyer, the buyer buys the supplier's products, and the supplier books the sale as revenue. Examples include Nvidia's US$105 billion guarantee of OpenAI's data center leases, Nvidia's obligation to buy back CoreWeave's unsold cloud capacity, and the US$573 billion web of interconnected AI financings mapped by Ares Management.
02
Is Nvidia funding its own customers?
In substance, yes for several of them. Nvidia finalized a US$105 billion guarantee backing OpenAI's 20-year leases on an Ohio data center campus in August 2026, holds about US$2 billion of CoreWeave equity, and is contractually obligated to buy up to US$6.3 billion of CoreWeave's unsold capacity through 2032. Nvidia says these are not circular financing but prudent uses of its scale. Skeptics say the revenue is real only as long as the financing holds.
03
Why is vendor financing risky?
Vendor financing turns a supplier's sales into its own credit risk. The revenue looks real on the income statement, but it is backed by loans or guarantees the supplier itself extended. If customers fail, the receivables become bad debt at exactly the moment the supplier's own business is weakening. Lucent's US$8.1 billion in customer financing in 2000 became billions in write-offs when telecom startups collapsed.
04
What did Michael Burry flag about AI financing?
On September 28, 2026, Burry highlighted an Ares Management analysis mapping about US$573 billion across 26 disclosed AI financings over the prior 12 months, tying together Meta, Oracle, Microsoft, Amazon, Google, Nvidia, OpenAI and Anthropic through bonds, leases, GPU-backed loans and guarantees. Ares warned the deals assume AI spending never slows, and Burry noted guarantees would be triggered precisely when the guarantors are weakest. Burry holds short positions against Nvidia, Oracle, Palantir, Micron, CoreWeave and Nebius.
05
Are Canadian pensions exposed to circular AI deals?
Yes. CPP Investments committed US$1.75 billion (about C$2.4 billion) to EQT's AI infrastructure strategy via EdgeConneX in July 2026, and disclosed a US$300 million investment in xAI debt for a Memphis data center. With a total fund around C$793 billion, these are small positions, but they put Canadians' retirement savings inside the same financing web the skeptics are warning about.
