Financial history is littered with weird and wonderful examples of collateral. In the 19th century, for instance, Peru used its future earnings from guano — a substance made from bat, bird and seal droppings — to secure loans for large-scale projects. The pooey mixture was an effective fertiliser, and readily available in the nearby Chincha Islands. Today, securities are thankfully less pungent, though not necessarily less toxic. Dodgy mortgage-backed securities helped trigger the 2008 financial crisis. What, then, to make of the latest financial innovation: collateralised artificial intelligence chips?
The Financial Times has reported that Wall Street’s largest financial institutions had loaned more than $11bn to “neocloud” groups, backed by their possession of Nvidia’s AI chips. These companies include names such as CoreWeave, Crusoe and Lambda, and provide cloud computing services to tech businesses building AI products. They have acquired tens of thousands of Nvidia’s graphics processing units (GPUs) through partnerships with the chipmaker. And with capital expenditure on data centres surging, in the rush to develop AI models, the company’s chips have become a precious commodity.
Euphoria over new technologies often goes hand in hand with financial innovation, which also reinforces it. Two centuries ago, during the railway boom in America and Britain, some railroad companies secured loans to lay more tracks, backed in part by their existing routes. Neoclouds are emulating them today. They provide data storage infrastructure for AI developers via power-purchase agreements. The loans they obtain from the likes of Blackstone, Pimco, Carlyle and BlackRock, secured by Nvidia chips, then allow them to buy more chips. In the event of a default, the lenders would acquire their chips and leasing contracts.