Nvidia’s massive future spending commitments ‘make the company’s risk profile more complex,’ Saxo says

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Nvidia’s massive future spending commitments make its risk profile more complex, Saxo says

Charu Chanana, the chief investment strategist at Saxo, isn’t saying that Nvidia is funding a circular bubble in AI. But she isn’t totally dismissing it either, she said in a recent email to Fortune.

Nvidia’s Q2 earnings on Wednesday were stunning, lifting the entire market on Thursday. Nvidia’s stock was up 8.74% yesterday. But Chanana says the 10-Q also discloses a ton of future commitments and financing while also revealing a reduction in free cash flow, from $48.5 billion last quarter to $21.3 billion this time.

Look at the future commitments Nvidia is pumping into the AI buildout, per page 18 of its 10-Q:

Supply and capacity commitments: $279 billion (up from $119 billion last quarter)

Cloud service agreements: $29 billion

Data center leases: $25 billion

Equity investments: $25 billion

Capex commitments: $8 billion 

All of the above totals: $366 billion

On top of that, Nvidia disclosed $56 billion in AI-cloud and third-party lease commitments, land and power guarantees of $108.5 billion, and “memorandums of understanding” with various finance providers for “more than $500 billion of third-party capital over time,” per the 10-Q. 

Even if some of that is duplicative, it's still a lot for a company that generated $96 billion in revenue in the last quarter. 

Yes, Nvidia is growing fast and needs to plan. And certainly it is profitable. But, Chanana says, the future commitments “also make the company’s risk profile more complex. Investors increasingly need to consider customer credit quality, leases, guarantees, revenue-sharing agreements and Nvidia’s equity investments—not just GPU shipments. This does not automatically make the revenue circular. It does mean Nvidia is increasingly helping to create and finance the ecosystem into which it sells.” 

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