NVDA, AVGO’s AI Backstops Have One Analyst Worried — Michael Burry Says There’s A Reason Nvidia’s 5Y CDS Are Going ‘Parabolic’

During an interview with CNBC, Wolfe Research analyst Chris Caso expressed concern that this backstop strategy creates liabilities that leave him “less comfortable.”

• Caso said Nvidia's financial strength gives it the flexibility to take on financing commitments that few companies in the semiconductor industry could match.
• “The Big Short” investor Michael Burry highlighted that Nvidia’s five-year credit default swaps are soaring, blaming what he described as the company’s overreach to send “circular spending to biblical proportions.”
• Tech strategist Dan Ives expects Big Tech to continue ramping up capital expenditures as companies race to expand AI infrastructure.

Wolfe Research senior analyst Chris Caso said Nvidia Corp. (NVDA) and Broadcom Inc. (AVGO) are taking on a new source of long-term risk by backstopping financing for key AI customers.

During an interview with CNBC, Caso expressed concern that this backstop strategy creates liabilities that leave him “less comfortable” even as it helps sustain the AI infrastructure spending boom.

“That part of it is less good, because there's some liability on there. That liability is probably far in the future, but that part I'm less comfortable with,” he said.

Nvidia shares were down 2% in Wednesday’s opening trade, while Broadcom shares were down about 0.4%.

Caso Explains The Likely Reason Behind NVDA, AVGO’s Backstops

Caso said Nvidia's financial strength gives it the flexibility to take on financing commitments that few companies in the semiconductor industry could match.

“Right now, the benefit Nvidia has is that they are generating just so much cash. They have such a strong balance sheet, and probably the healthiest balance sheet in the industry,” he said.

Caso suggested the backstop strategy may reflect an effort to ensure financing doesn't become a constraint on AI infrastructure spending.

“I think what Jensen's trying to do is figure that if financing becomes a bottleneck, that constrains his business, so let's try to remove that bottleneck,” Caso said, adding that Broadcom is pursuing a similar approach.

Nvidia announced a partnership with the SK Group last week for a $500 billion initiative spanning AI factories and next-generation memory. The company is also in talks to backstop about $250 billion to help OpenAI lease compute for a data center project, according to a report by Bloomberg.

Meanwhile, Broadcom announced a new AI XPV platform last month in partnership with Apollo and Blackstone’s Credit & Insurance Business, with an initial tranche of $35 billion.

Burry Sounds The Alarm

“The Big Short” investor Michael Burry turned his attention to Nvidia's credit risk.

In a post on X, Burry wrote that there is a reason the chipmaker's five-year credit default swaps (CDS) are going “parabolic,” blaming what he described as Nvidia”s overreach to send “circular spending to biblical proportions.”

Burry's remarks came alongside a chart showing a sharp rise in Nvidia's five-year CDS, financial contracts that act as insurance against a company's debt default. 

Caso, for his part, said Nvidia's financing commitments create long-term liabilities but acknowledged that the company's cash generation and healthy balance sheet give it ample capacity to shoulder those risks.

Earlier this week, Burry said that Wall Street had delivered its verdict on Big Tech's AI spending, with investors increasingly favoring companies showing stronger returns over larger capital commitments.

“The market has voted and the results are clear,” Burry said in a post on X, alongside charts compiled by Bloomberg showing that Alphabet Inc. (GOOG, GOOGL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Meta Platforms Inc. (META), Oracle Corp. (ORCL), Micron Technology Inc. (MU) and Tesla Inc. (TSLA) have collectively detracted from the S&P 500's returns since the start of June.

Dan Ives Sees No Slowdown In AI Capex

Despite concerns over the risks associated with financing the AI buildout, tech strategist Dan Ives expects Big Tech to continue ramping up capital expenditures as companies race to expand AI infrastructure.

In a post on X, Ives said the next few days will be pivotal for the AI investment theme, adding that he expects technology giants to “double down” on their AI spending plans as enterprises accelerate strategic AI deployments. He said the focus is now shifting from the pace of investment to whether companies can demonstrate returns from those outlays.

“Signs of monetization will be key as patience from tech investors [is] being tested,” Ives said.

The S&P 500 ETF (SPY) is up 16% over the past 12 months, while the Invesco QQQ Trust (QQQ) is up 19%.

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