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GPUs get financed like airplanes
Lending against the machine
When an airline buys airplanes, lenders look past the airline's creditworthiness because the planes hold value. Even if the airline gets in trouble, the lender is protected. Private equity firms describe GPUs the same way, as asset-backed financing.
The useful life question
For that to work, the hardware has to be standardized, with reference designs that let Wall Street package it up and turn it into securities. The key number is how long a chip stays useful. Open-source models can be tweaked to run on the oldest hardware, and CoreWeave is renting out Ampere chips, which came out in 2020, at profitable rates for 2029. That is a nine-year life.
Nvidia's offer to lenders is a residual value guarantee: after three or four years, the GPUs can be rented at a set rate. Nvidia would carry the risk between that rate and the market rate, and in return it would take a share of revenue above that level.
The overbuild risk
The biggest risk is an overbuild, a glut of compute that leaves GPUs sitting dark the way fiber did after the dot-com crash.
Why do lenders trust aircraft as collateral?
Planes are standardized, last for decades, and can be flown anywhere to be sold or leased to another airline. The Cape Town Convention, adopted in 2001, lets lenders register their interest in an aircraft in an international registry and repossess it across borders after a default. That reliable claim lowers the interest rate lenders charge. The treaty was negotiated under the auspices of the International Civil Aviation Organization and UNIDROIT.
How do loans become tradable securities?
Securitization pools many loans and sells slices of the pool's payments to investors. It began with mortgages, when Ginnie Mae issued the first mortgage-backed securities in 1970. Standard terms let investors judge a pool without inspecting each loan. Aircraft leases and auto loans are now packaged the same way.
What happened to fiber after the dot-com crash?
Telecom companies laid enormous amounts of fiber in the late 1990s, expecting internet traffic to grow explosively. When the market crashed in 2000 and 2001, much of that cable sat unlit, which became known as dark fiber. Demand from video streaming and cloud computing absorbed much of it over the following decade.
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