Douglas French
For lending, as in all things, necessity is the mother of invention. No matter the rate, lenders want to lend and borrowers want to borrow, with both sides tending to overdo it. The Wall Street Journal reports that the newest collateral thing is the AI chip. Wall Street heavyweight Blackstone led a $7.5 billion financing last week for CoreWeave, “a New Jersey–based startup that owns artificial-intelligence chips and associated computing gear in data centers.”
The collateral of the realm these days is Nvidia’s graphics-processing-unit, or GPU, chip. For the moment, Nvidia can’t keep up with demand from the likes of Amazon and Microsoft. These companies are gorging themselves on the chips, sending GPU chip prices skyward. “For Wall Street, their utility has given them another kind of power, turning them into assets that can backstop loans,” write Asa Fitch and Miriam Gottfried for the WSJ.
Over $10 billion has been raised using GPU chips as collateral. Startups in the AI space, while growing quickly, are not profitable. Thus, loan interest rates are in the low double digits as traditional lenders, which charge lower rates, have avoided the sector. Instead, asset-based lenders, which small businesses and real estate developers have typically had to turn to are providing capital for this high-flying technology niche.
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