The rapid expansion of AI data centers is built on two fragile pillars: Nvidia’s chips and massive amounts of borrowed money. What began as a technological race has evolved into a financial system where Nvidia chips are not just the engine of AI but also the collateral for loans, creating a self-reinforcing cycle that may be more vulnerable than it appears. Nvidia has invested heavily in the AI ecosystem, with over 70 AI-related investments in 2024 alone. A key part of this strategy involves supporting neoclouds—newer, agile data center companies like CoreWeave, Fluidstack, and Lambda—by providing them with direct investments and, more crucially, by becoming a major customer. These neoclouds, in turn, use the very chips they buy from Nvidia to secure massive loans, often with the chips themselves as collateral. This turns a $1 investment in Nvidia into $5 worth of chip purchases, a dynamic that benefits Nvidia but raises serious questions about sustainability. The financial mechanics are complex. Lenders, including private credit firms like Magnetar, Blackstone, and PIMCO, and even major banks like JPMorgan Chase and Goldman Sachs, are offering high-interest, long-term loans to neoclouds, often with loan-to-value ratios exceeding 100%. The interest rates—sometimes as high as 14%—reflect the risk, but the real danger lies in the assumption that Nvidia chips will retain value. In reality, these chips depreciate quickly, with some experts arguing that they lose significant value within three to four years, far faster than the five- to six-year depreciation schedules companies use in their financial models. This mismatch is a ticking time bomb. If chip values fall faster than expected, neoclouds may be forced to add more collateral or face default. The most concerning part? The system is built on the belief that Nvidia will keep bailing out the neoclouds. The company has already made a $6.3 billion commitment to CoreWeave, and its own cloud service spending has surged to $26 billion by 2031—spending that may be a backstop to keep the ecosystem afloat. This isn’t just about sales; it’s about control. By propping up neoclouds, Nvidia ensures a broad base of customers, prevents Big Tech from monopolizing compute, and maintains its dominance in the AI supply chain. But that support is not guaranteed. Nvidia is facing increasing competition. Google’s TPUs, Amazon’s custom chips, Microsoft’s Maia, Meta’s custom silicon, and even AMD’s rising performance are all eroding Nvidia’s lead. If these alternatives gain traction, demand for Nvidia’s chips could slow, and the company may no longer have the financial or strategic incentive to keep bailing out the neoclouds. The risk is systemic. Neoclouds are interconnected with banks, private credit, and Big Tech. A failure in one could trigger a chain reaction. If a neocloud defaults, lenders repossess the chips, flooding the market with used hardware. This could crash prices, damage Nvidia’s inventory, and expose the overvaluation of the entire sector. The parallels to the 2008 financial crisis are striking: complex, opaque financial products, overreliance on collateral, and a lack of regulation. As Sarah Bloom Raskin, a former Treasury official, notes, the current model “rhymes” with the past. The real threat isn’t just a few failed startups. It’s a cascade. A delay in a data center build—caused by weather, power shortages, or design changes—can trigger a default. If a neocloud with a $10 billion loan fails, the loss may be absorbed by a private credit fund, but that fund is likely backed by pension funds, endowments, and family offices. The risk then spreads to banks, which have lent to the private credit firms. The entire system is a house of cards, and the only thing holding it up is the belief that Nvidia will keep the game going. The question isn’t whether the music will stop. It’s when—and what happens when it does.