Nvidia, the world's top artificial intelligence (AI) chipmaker, has surrendered its market capitalization lead to Apple after more than a year, engulfed once again in "circular trade" suspicions following last year's episode. This time, Nvidia is suspected of forming a circular trade relationship with OpenAI, the developer of ChatGPT, and SK Group has now been added to the list.
Wall Street views such circular trades with unease, given that a significant portion of Nvidia's revenue depends on the astronomical capital expenditure (CAPEX) of hyperscalers, or ultra-large cloud operators, including Amazon, Google parent Alphabet, Microsoft, Facebook parent Meta and Oracle. Because the hyperscalers' debt levels are so large, any contraction in the economy, higher interest rates or reduced investment could plunge not only Nvidia but also other companies in circular trade relationships into successive difficulties. With many hyperscalers' cash-raising capacity already depleted and additional funding channels such as bank loans, corporate bond issuance and rights offerings shrinking, the theory that the semiconductor boom has peaked remains influential on Wall Street.
Nvidia to Guarantee $250 Billion for OpenAI... Separate $350 Billion Support to Buy Its Own Chips
The Wall Street Journal (WSJ) reported on the 26th that Nvidia is discussing a plan to provide payment guarantees worth $250 billion (about 365 trillion won) to help OpenAI lease data centers. The facility OpenAI seeks to lease is a 10-gigawatt (GW) data center hub being built in Ohio. A subsidiary of SoftBank Group, which is pursuing the "Stargate" project together with OpenAI, is leading development of the data center complex. The Stargate project is a venture in which SoftBank Group Chairman Masayoshi Son and OpenAI CEO Sam Altman plan to invest $500 billion (about 750 trillion won) over five years to build AI data centers across the United States. This mega data center complex is also a product of the trade agreement reached last year between the U.S. and Japan.
OpenAI's outreach to Nvidia is interpreted as stemming from the company's difficulty raising funds, as it is not yet a listed company. OpenAI has so far borrowed the infrastructure of cloud operators such as Microsoft, Amazon and Oracle. Going forward, its move is read as a bid to lease the Ohio data center that it can directly control, building up its corporate heft ahead of listing.
According to the U.S. business media outlet Business Insider, OpenAI's corporate value on the over-the-counter market stands at $933 billion (about 1,380 trillion won), a 20% increase over the past three months. OpenAI was valued at $852 billion in March this year, but subsequently traded at about a 10% discount amid judgment that it had fallen behind rival Anthropic, developer of "Claude." Unlike Anthropic, which is pursuing a listing this October, OpenAI is considering an initial public offering (IPO) next year due to management issues.
According to the WSJ, Nvidia is also discussing a contract to provide about $350 billion to enable OpenAI to buy its semiconductors, separate from the payment guarantees. It is a typical circular trade arrangement in which money is given to companies such as OpenAI or Anthropic in the name of investment, but in reality induces them to use those funds to buy Nvidia's graphics processing units (GPUs). The WSJ reported that "such circular funding methods are pointed out as increasing the vulnerability of the entire industry when AI company growth slows or investment sentiment contracts."
Suspicions of Nvidia's circular trade did not end there. Some on Wall Street pointed out that its partnership with SK Group is also a form of circular trade. In fact, on the 24th, Nvidia signed a comprehensive letter of intent (LOI) with SK Group worth more than $500 billion related to building AI factories and supplying memory chips, at the "San Francisco AI Summit" held in California with President Lee Jae-myung and Korean and U.S. tech companies participating.
$500 Billion Infrastructure Partnership With SK Too... Wall Street Again Suspects 'Circular Trade'
In detail under this LOI, SK Telecom decided to receive next-generation GPUs from Nvidia and pursue investment cooperation to build AI factories of up to 2 GW in Korea. Based on Nvidia's full-stack AI factory architecture, the DSX platform, SK Telecom plans to adopt "Vera Rubin," a next-generation AI computing system equipped with SK hynix's sixth-generation high bandwidth memory (HBM4), and build high-performance AI factories in phases starting next year.
In return, Nvidia decided to receive a stable supply of next-generation AI memory chips from SK hynix (000660.KS). Nvidia CEO Jensen Huang said, "Nvidia, together with SK Telecom (017670.KS) and SK hynix, will create a new generation of AI factories that will lead Korea's next growth." SK Group Chairman Chey Tae-won said, "Based on SK Telecom's AI infrastructure capabilities and SK hynix's memory chips, we will build world-class AI factories together with Nvidia and contribute to Korea leaping forward as a global hub creating innovation."
SK Group also formed large-scale AI infrastructure partnerships totaling $250 billion with other big tech companies. It decided to pursue long-term memory chip supply cooperation with Microsoft, and signed a comprehensive memorandum of understanding (MOU) with Anthropic to cooperate on building GW-class AI data centers in Korea. It also held a separate meeting with Amazon Web Services (AWS) to discuss expanding the partnership built through jointly constructing the existing Ulsan data center into Korea's overall AI infrastructure. At the event, Chairman Chey also exchanged views with CEO Altman on the direction of long-term cooperation in the AI infrastructure field.
Wall Street again expressed unease at Nvidia's deal-making approach. In September last year, Nvidia announced it would invest $10 billion each in OpenAI across 10 rounds, and suffered severe backlash. The terms at the time were also structured so that OpenAI would use the money received from Nvidia to again buy large quantities of AI chips. This led to a "bubble theory" across AI-related stocks and gradually cracked Nvidia's No. 1 market cap position, which it had cemented since June last year by overtaking Apple and Microsoft. Nvidia's market cap, which surpassed $5 trillion (about 7,500 trillion won) for the first time in history on October 29 the same year, moved sideways in the $4 trillion range for six months, unable to completely dispel the bubble theory.
As the situation grew serious, the agreement did not lead to a formal contract. Nvidia ultimately cut its investment in OpenAI sharply from the previous $100 billion (about 150 trillion won) to $30 billion (about 45 trillion won) early this year.
Apple Reclaims No. 1 Market Cap After 15 Months, SK Hynix Falls Below IPO Price... 'Peak-Out' Issue Likely to Persist
Circular trade suspicions tied to OpenAI and SK Group weighed on Nvidia's share price again this time. Nvidia fell 4.99% on the New York Stock Exchange on the 27th, with its market cap slipping below Apple's on a closing basis for the first time in about a year. That day, Apple recorded a market cap of $4.9483 trillion, overtaking Nvidia, which shrank to $4.7555 trillion, to reclaim the No. 1 market cap spot it had ceded in April last year. Apple had also briefly overtaken Nvidia for the top market cap spot intraday on the 17th, but was reversed again by market close.
Recently, Apple has ironically won praise from Wall Street precisely because it fell behind in the AI race. By refraining from excessive AI investment, its financial conditions remain more solid than other big tech companies. In this regard, Alphabet on the 22nd raised its capital expenditure forecast for this year from the previous $180 billion-$190 billion to $195 billion-$205 billion (about 288 trillion-303 trillion won)
