Bond traders worry about $70bn in hidden AI debt guarantees

Bond traders are increasingly concerned about roughly $70 billion in off-balance-sheet "residual value" guarantees tied to AI infrastructure debt, with Nvidia poised to add tens of billions more in such support, potentially creating hidden liabilities that could surface during a downturn. These backstops, used by companies like Meta and Broadcom, protect lenders if AI firms default or walk away from assets, with the guarantor covering any shortfall after asset sales. Rating agencies are adding these to adjusted debt calculations, while investors warn the structures obscure financial reality and amplify boom-bust risks. Nvidia's new $500 billion financing partnership may include residual value support for up to 25% of an opportunity, assessed case-by-case. Proponents argue demand will outstrip supply for years, making trigger events remote, though skeptics note the guarantees become most relevant during severe downturns.