Nvidia's AI Growth: Bubble or Sustainable Boom?

Nvidia's third-quarter fiscal 2026 results have cemented its status as the dominant force in AI infrastructure, with record revenue of $57.0 billion driven by a 62% year-over-year surge in Data Center segment earnings ($51.2 billion). This growth, fueled by demand for AI chips like the Blackwell architecture and strategic partnerships with hyperscalers, has positioned the company as a linchpin in the global AI race. Yet beneath the surface of these impressive figures lies a complex web of financing structures and debt-driven expansion that raises critical questions: Is this a sustainable boom, or are the risks of a circular financing model creating a precarious bubble?

The Financial Engine: Revenue, Debt, and Shareholder Returns

Nvidia's Q3 performance was underpinned by a 22% sequential revenue increase, with the Data Center segment accounting for 90% of total revenue. This segment's success stems from its role in powering AI training and inference workloads, with cloud providers in Asia and the U.S. aggressively adopting NVIDIA's accelerated computing solutions. The company's financial discipline is also notable: despite its aggressive AI investments, it returned $37.0 billion to shareholders through buybacks and dividends in the first nine months of fiscal 2026, while maintaining $57 billion in cash and investments against $8.5 billion in funded debt according to research.

However, the company's reliance on operating cash flows for capital expenditures (80–90% of planned capex) suggests a degree of financial prudence according to UBS analysis. This contrasts with its SPV (Special Purpose Vehicle) financing model, which has become a double-edged sword.

The SPV Dilemma: Financing AI at Scale

Nvidia's SPV strategy allows AI startups and hyperscalers to lease high-cost GPU hardware without burdening their balance sheets. For example, a $20 billion SPV raised to fund $2 billion in NVIDIA GPUs for xAI secures long-term revenue for the chipmaker while enabling xAI to avoid direct debt according to Decibio analysis. Similarly, CoreWeave's $12.9 billion in committed facilities-of-which $8 billion has already been drawn-illustrates the scale of this approach according to Reuters reporting.

Yet these structures introduce significant risks. SPVs are often collateralized by the leased GPUs, which could be sold at steep discounts if lessees default. CoreWeave alone faces $1.5 billion in debt repayments by late 2025, with interest expenses tripling year-over-year according to TechTonicShifts. If refinancing fails, the ripple effects could devalue SPVs tied to NVIDIA's financing arrangements, potentially triggering write-downs.

Circular Financing and Systemic Risks

The SPV model's circular nature-where NVIDIA finances AI infrastructure, leases it back, and recognizes revenue upfront-accelerates earnings but exposes the company to contingent liabilities. For instance, xAI's SPV includes a covenant requiring GPU utilization to stay above 70%; a drop below this threshold could trigger default according to substack analysis. With $110 billion in direct investments and $15 billion in SPV debt, NVIDIA's exposure is seven times larger than what contributed to Lucent Technologies' collapse during the dot-com bubble according to Investing.com analysis.

Moreover, the cost of capital for these SPVs (9–18%) contrasts sharply with the near-zero rates customers effectively pay, creating a margin drag that isn't reflected in traditional cost-of-goods metrics according to Investing.com analysis. If a fraction of this $110 billion portfolio turns sour, NVIDIA could face $10–15 billion in lost revenue, potentially slashing its valuation multiple from the low 50s to the mid-30s according to Investing.com analysis.

Strategic Partnerships and the Path Forward

NVIDIA's partnerships with Brookfield, Kuwait Investment Authority, and TSMC highlight its efforts to mitigate risks through diversified capital sources and supply chain coordination according to Yahoo Finance reporting. A 10-gigawatt deployment with OpenAI and collaborations with Google Cloud and Microsoft further solidify its ecosystem dominance according to NVIDIA news. However, these alliances also lock NVIDIA into long-term commitments that could strain liquidity if demand for AI infrastructure slows.

The company's Q4 revenue guidance of $65 billion (±2%) underscores its confidence in sustaining growth according to NVIDIA's Q3 results. Yet this optimism must be tempered by the reality that AI's $7 trillion capital requirement over the next decade will test even the most robust financing models according to Bloomberg analysis.

Conclusion: Balancing Innovation and Prudence

NVIDIA's AI-driven growth is undeniably transformative, but its reliance on SPVs and circular financing introduces systemic risks that investors cannot ignore. While the company's liquidity and strategic partnerships provide a buffer, the potential for collateral devaluation, covenant breaches, and refinancing failures looms large. For now, the boom appears sustainable-provided the AI gold rush continues. But as the dot-com analogy warns, even the most innovative companies can falter when financing outpaces fundamentals.

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