Learn from Nvidia's boost in chip sales, AMD provides guarantees for "AI Cloud" loans

AMD is accelerating AI chip shipments by using financial “backstopping” to catch up with Nvidia’s lead in data center AI chips.

According to The Information, AMD will provide substantial guarantee for a $300 million loan to data center and cloud startup Crusoe, with Goldman Sachs as the lender. The funds will be used to purchase AMD’s AI chips and install them in a data center in Ohio.

Sources say the loan will be collateralized by the chips and related equipment. As part of the guarantee arrangement, if Crusoe cannot find customers willing to use these chips—such as AI developers—AMD will agree to lease the chips from Crusoe, providing a “demand backstop” for Crusoe.

This approach continues Nvidia’s previous expansion of “rental cloud” services and has sparked controversy among investors: such structures may boost chip sales in the short term but could expose chip manufacturers to greater risks if AI demand slows.

Transaction Structure: $300 Million Loan Secured by Chips and Equipment, AMD Commits to “Rental Backstop”

According to The Information, the $300 million loan to Crusoe from Goldman Sachs is secured by AMD chips and related equipment, which Crusoe will deploy in an Ohio data center built by Canadian developer 5C, supported by Brookfield.

Sources indicate that AMD’s guarantee hinges on a “last-tenant” arrangement, meaning that if Crusoe cannot find external customers to utilize the computing capacity, AMD will rent the chips itself.

This arrangement helps Crusoe lower its borrowing costs to around 6%, significantly below what it might obtain without a backstop.

Following Nvidia’s Path: Using Funds and Commitments to Cultivate “Rental Cloud” and Drive Chip Demand

The Information notes that Nvidia previously leveraged its stronger financial position to support cloud companies that rent chips to developers, enhancing their financing capacity through investments and capacity purchase commitments.

For example, Nvidia invested in CoreWeave and agreed to purchase capacity that CoreWeave could not sell to other customers. In 2023, CoreWeave established its first debt financing arrangement, totaling $2.3 billion, backed by Nvidia chips and customer contracts.

Similar financing is spreading. London-based Nscale announced this month that it secured $1.4 billion in loans from institutions including PIMCO and Blue Owl Capital, with a spokesperson stating the loans are secured by company contracts and chips.

Pressure to Catch Up: CEO Sets Market Share Goals, AMD Boosts Unconventional Promotions

This Crusoe financing arrangement highlights AMD’s use of more unconventional methods to compete in the AI chip market. The Information reports that AMD CEO Lisa Su has expressed a goal to achieve “hundreds of billions of dollars” in annual AI chip sales next year and to capture at least 10% of the market share.

The report also mentions that Crusoe’s debt financing occurred after a deal AMD made last October, in which AMD agreed to sell chips capable of delivering up to 6 gigawatts of power over several years to OpenAI. As part of the deal, OpenAI can choose to gradually purchase up to 10% of AMD’s shares upon reaching certain milestones.

Cloud providers are also following suit. Piotr Tomasik, COO of cloud startup TensorWave, which rents AMD chips, said that all parties are “pulling out all the stops” to expand market share, and that TensorWave is also pursuing debt issuance, though no further details were disclosed.

Controversy and Exposure: Sales “Financialized,” Risks Return to Manufacturers with AI Cycles

Investors criticize these types of deals between AMD and Nvidia, arguing that financing and backstopping clauses may artificially inflate sales figures and shift the risks of slowing growth back onto chip manufacturers and involved parties.

For Crusoe, such financing provides ammunition for expansion and preparing for an IPO. The Information reports that Crusoe is valued at about $10 billion by investors and may go public as early as this year.

Crusoe previously projected that from last year through the early part of the next decade, the company’s annual cash burn would be between $2 billion and $4 billion, with plans to reach $18 billion in annual cloud revenue by the end of this decade.

For the market, AMD’s move to “guarantee AI cloud borrowing” could accelerate its AI chips’ entry into data centers, but also deepen its ties with customers, increasing sensitivity to fluctuations in AI computing demand.

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