A massive structural shift is on the way in financial markets, where artificial intelligence hardware could increasingly become collateral for securitized credit. During the August 11 episode of CNBC’s Mad Money, host Jim Cramer detailed how major investment institutions are preparing to issue “compute bonds” backed by data center equipment, drawing direct parallels to established securitized credit markets.
Cramer opened his commentary by pointing out how Wall Street leadership, including Goldman Sachs CEO David Solomon, aligned with NVIDIA Corporation (NASDAQ:NVDA) CEO Jensen Huang to champion data center assets as long-lasting collateral:
Today, we’re learning about the possibility of institutions offering compute bonds. This time, trading compute, that’s a data center asset class, not unlike those securitizations in auto loans. There’s Jensen Huang, CEO of NVIDIA, talking about the viability of the data center, long-lasting value of the chips in these warehouses full of servers. Then you had a series of titans of finance talk about how logical the whole thing is. Then David Solomon, the CEO of Goldman Sachs, piped up and pushed them too.
Securitization Mechanics and Asset Durability
To digest the mechanics of these proposed instruments, Cramer highlighted that compute bonds operate under the exact same structural framework as mortgage-backed or auto loan securities:
What you didn’t hear, or at least I didn’t hear until I digested it, was that these would be securitizations, just like securities backed by home loans or auto loans. Hence the strong endorsement of Goldman’s David Solomon who can see the logic… Now, you may be wondering, will these pieces of paper be backed by the full faith and credit of Jensen Huang and NVIDIA? That’s very funny, but no. But neither are the securities based on auto loans or home loans. There’s a construct at work here, though. There’s a belief that the assets don’t depreciate quickly, if at all.
Comparing Microchip Resilience to Automobile Depreciation
Expressing strong personal confidence in the asset class, Cramer argued that graphics processing units produced by NVIDIA Corporation (NASDAQ:NVDA) retain value far better than traditional vehicles. He said:
I can tell you I’m a believer. The NVIDIA chips that are at the core of the data center haven’t shown much depreciation at all… Older models have held up better than cars which are worth less than the moment they leave the lot… At the beginning, it wouldn’t shock me if NVIDIA itself took down bonds by the tens of millions, augmenting their cash program while demonstrating their fidelity. I know that’s what I’d do.