Nvidia, Oracle plunge as $250B OpenAI financing deal spooks markets

Nvidia and Oracle shares have plunged 15 percent and 62 percent from their highs as investors question whether AI's record spending is genuine demand or a circular-financing loop. The selloff erased $1.3 trillion in semiconductor market value in a single week, with AMD falling 5.17 percent to $494.95 on July 27 and South Korea's KOSPI posting its third-worst month on record with a 22 percent loss.

"The whole US market is all one AI trade, so it better succeed," Steve Eisman, the investor who bet against subprime mortgages, said, capturing the concentration risk that has Wall Street on edge.

The trigger was a Wall Street Journal report that Nvidia is negotiating a guarantee for $250 billion that would allow OpenAI to lease computing capacity for a US data center project. Nvidia shares dropped nearly 5 percent in a single session when the news emerged, allowing Apple to reclaim the title of the world's most valuable listed company. The pattern — a supplier effectively underwriting its own customer base — has drawn warnings from Michael Burry, who flagged "circular spending of biblical proportions," and Mark Cuban, who cautioned about a "frightening problem" if AI breakthroughs fail to translate into corporate profits.

The stakes are enormous. The top hyperscalers, neoclouds, Meta Platforms and SpaceX are expected to incur more than $2.16 trillion in capital expenditure across fiscals ending 2026 and 2027, according to Bloomberg consensus. Alphabet, Amazon, Microsoft, Meta and Oracle have raised a combined $328 billion in debt securities in 2025 and 2026, with hidden off-balance-sheet commitments now estimated at $2.5 trillion. Nvidia, which has not generated negative free cash flow since fiscal 2009, has issued $25 billion of debt in the same period. S&P Global downgraded Oracle's long-term credit rating to BBB-, one notch above junk, and its credit-default-swap spread now exceeds the 211 basis-point peak of 2008.

Nvidia's August 26 earnings report — with guidance of roughly $91 billion in revenue, up from $81.6 billion in the prior quarter — will be the first major test of whether the numbers justify the narrative. The cloud giants' upcoming earnings will be just as important; Alphabet shares already stumbled after the company raised its 2026 capex guidance from $195 billion to $205 billion and posted its first quarter of negative free cash flow. The S&P 500 trades at 33 times 2025 earnings, a multiple that cools to 23 times on 2026 estimates — the thin line dividing the bull and bear case.

The technical picture is bruised but not broken. Nvidia trades 1.79 percent above its 200-day moving average of €166.33, a level that has repeatedly held as support this year, with a 14-day RSI of 41.6 drifting toward oversold. Wall Street's consensus price target stands at €262.76, implying roughly 53 percent upside, and Morningstar assigns a "Wide Moat" rating with fair value near $280.

Competition is also closing in. Google's TPU chip line, with version 9 aiming to challenge Nvidia's delivery volumes by 2028, and Huawei's Ascend 950PR — in mass production for nearly four months — threaten the moat built on both hardware and software. Chinese tech companies have ordered more than two million H200 chips for 2026, yet Nvidia's entire inventory sits at roughly 700,000 units, with Washington blocking most shipments despite $10 billion in approved licenses.

The burden of proof now rests with Nvidia. If the hyperscalers signal weaker AI investment in coming weeks, skepticism about circular financing will intensify, and the 200-day moving average becomes the key battleground: hold it and the long-term uptrend stays intact; lose it and the correction could deepen.

This article is for informational purposes only and does not constitute investment advice.