Nvidia is reportedly negotiating to provide billions in debt financing guarantees for Nscale, an AI cloud provider, specifically for its planned Anthropic data center in West Virginia. The Information initially reported Thursday, with Bloomberg confirming the news later. Anthropic has already committed to a $44.6 billion contract for just the initial building of this project, as revealed in Nscale’s IPO filing. Essentially, this move would see the chip manufacturer co-signing a client’s loans, illustrating the intense efforts within the AI sector to maintain its expansion initiatives amidst increasing investor uneasiness regarding the significant capital expenditures involved.
This proposed agreement would assist Nscale in securing the necessary funding for both the power and construction expenses of its West Virginia site. Through a residual value guarantee, Nvidia would intervene if Nscale failed to meet its construction payment obligations, temporarily managing the facility and aiding in securing a new buyer and tenant, as reported by The Information.
Previously, Nvidia’s backing for cloud service providers primarily encompassed leases and chip acquisitions, rather than construction projects.
The situation is critical for Nscale, which aims to launch its IPO with a valuation potentially reaching $35 billion, even as doubts arise concerning its capacity to execute demanding data center initiatives.
Anthropic’s agreement with Nscale pertains to the initial 460-megawatt structure at Nscale’s West Virginia site, which is anticipated to utilize Nvidia’s forthcoming Vera Rubin chips. Discussions are also underway between the companies for a separate agreement, valued at approximately $45 billion, for an additional building.
Nscale has encountered difficulties in advancing its projects. As of August, the company had approximately 25,000 advanced AI chips operational, a small portion of its target of nearly 500,000. The West Virginia campus, in particular, has faced hurdles, with construction site runoff causing repeated flooding in adjacent residences on multiple occasions. Following extensive negotiations, the project finally received state certification in September.
Earlier this month, Microsoft withdrew its involvement from a proposed Nscale location in England, a decision prompted by the postponement of grid power availability until the 2030s.
Nvidia has emerged as a significant financial supporter within this industry, having provided approximately $170 billion in investments and credit backing to neoclouds and major clients, as reported by The Information. This sum incorporates $1 billion in convertible financing pledged to Nscale in September.
Neoclouds, which provide AI computing power rentals without a robust primary business to generate cash, are experiencing increased scrutiny from investors. As of last week in October, the shares of CoreWeave, Nebius, and IREN had each depreciated by over 30%, CNBC disclosed.
This potential guarantee would fortify Nvidia’s financial relationship with Nscale and simultaneously ensure a significant client for its chips. Anthropic, being a prominent consumer of AI computing resources, has diversified its infrastructure investments among various chip manufacturers. An investor communicated to The Information that Anthropic’s participation probably underpins Nvidia’s motivation to keep Nscale’s project progressing.
These discussions coincide with Anthropic facing scrutiny regarding the funding for its aggressive expansion. Although the company initiated its public offering this week, Blackstone has cautioned investors that Anthropic might receive a sub-investment-grade credit rating post-IPO. Such a rating would elevate Anthropic’s borrowing expenses, potentially necessitating continued dependence on more financially robust partners to support its debt.