Amidst the sexual scandal and espionage allegations surrounding NVIDIA CEO Jensen Huang, a concerning question arises: if something goes wrong with this chip manufacturer, could it spread through the tight financial network established by NVIDIA to support the boom in artificial intelligence?

If NVIDIA encounters serious problems, it could cause widespread economic and financial damage. The company has made financial commitments in the tens of billions of dollars to other enterprises to help drive industry development, which is why it is referred to as the "central bank of AI." The Federal Reserve and other financial institutions are closely monitoring the construction process of AI to assess the possibility of any unexpected events that could disrupt the global financial system.

As early as July, Federal Reserve officials discussed that if there were problems in the AI industry, it could trigger a "widespread revaluation of assets."

However, analysts and current and former financial officials believe that a repeat of the financial crisis from 2007 to 2008 is unlikely. Sheila Bell, a former government regulator who led the Federal Deposit Insurance Corporation of the United States (FDIC), stated that NVIDIA "is not big enough to fail in the sense of banks." Unlike troubled banks, NVIDIA does not face the risk of a sudden loss of confidence; even if problems arise, it will still produce the products that customers want to buy, and its substantial equity provides a buffer.

However, Bell stated that regulatory authorities need to pay close attention to the exposure of banks and the broader financial system to NVIDIA and similar companies.

"NVIDIA's collapse would be a rather dramatic event," she said.

Investors still have high hopes for NVIDIA. The company will release its financial report on Tuesday. According to LSEG data, analysts expect its revenue to more than double this fiscal year and then roughly double again in the following two years. However, with Jensen Huang being under investigation by the Federal Bureau of Investigation (FBI), Congress, and NVIDIA's board of directors due to his relationship with a woman – the New York Times reported that this woman is suspected of engaging in espionage for China – analysts believe that there are now a variety of possible outcomes, including the possibility of Jensen Huang being removed from his position. Jensen Huang co-founded NVIDIA in 1993.

NVIDIA did not immediately respond to requests for comment. NVIDIA's board of directors has expressed confidence in this CEO.

After the Democratic Party's unexpected victory in the midterms on November 3, a widespread re-evaluation of AI trades dragged down NVIDIA's stock price by 30% from its high on October 6 to the close on Tuesday. However, NVIDIA's stock price rebounded on Wednesday, rising by more than 4% by noon. Nevertheless, those who closely track the flow of funds behind AI say that even if NVIDIA experiences a larger decline, it is unlikely to trigger the kind of systemic problems that regulators are wary of.

However, the risks brought about by AI still keep some financial officials awake at night. They worry that many of the factors that have contributed to the prosperity of AI could reverse simultaneously. For example, if the value of NVIDIA GPU chips falls, it might prompt investors to question whether the companies that borrowed money to purchase these chips have the ability to repay their debts.

In this case, the financial support that large technology companies provide to other enterprises within the industry can suddenly become a burden that hinders their growth. Technology companies may face credit issues alongside declining stock prices. The problems that arise with large tech firms are not limited to the investment portfolios of tech investors; they could also cause trouble throughout the economy.

Jason Wu, the Assistant Director of the Global Market Analysis Department at the International Monetary Fund ( IMF ), said: "I think this is indeed a real concern, because both the economy and financial markets are standing on the same leg, which means that a pullback could have a mutually reinforcing effect between the two."

Wu is the lead author of a chapter in the Global Financial Stability Report released by IMF in October. The chapter warns that rising leverage ratios among AI firms and investors could trigger broader problems. So-called "ultra-large cloud service providers" – that is, the largest technology companies – have increased their share of bond issuance in the $1.5 trillion investment-grade debt market from 1% to 10% in just two years. Hedge funds and retail investors, by borrowing to buy stocks or investing in funds with embedded leverage, are making what are already high-risk bets even more dangerous.

NVIDIA is at the center of all this. The company has repeatedly stepped in to support small AI companies, known as “neoclouds”, which use NVIDIA chips to build data centers and rent out computing power to other enterprises. In July, NVIDIA disclosed that, in addition to other obligations, it has committed to purchasing cloud services worth up to $36 billion from these companies. This helps NVIDIA ensure that its AI chips have more customers, and it also makes it easier for these companies to raise funds.

Wu and others refer to this type of arrangement as revolving financing. When business grows, it can be beneficial for large companies to help their customers purchase their own products. However, if NVIDIA is unable to fulfill its obligations, the impact will be felt by the companies that borrowed money as well as the banks that lent them funds. Relatively opaque private credit funds have also entered the AI craze in large quantities, and how they will respond remains a topic of debate among regulatory authorities.

NVIDIA has not disclosed its specific partners, but some neoclouds, such as CoreWeave and IREN, have respectively revealed their relationships with this large company.

Many neocloudss have been under pressure in recent weeks. According to LSEG data, the credit default swap spread, which measures the cost of debt insurance for CoreWeave, rose by 94% from October 1st to November 5th, almost doubling, before then declining somewhat. Meanwhile, against the backdrop of a 26% decline in IREN's stock price, the price of the company's convertible bonds maturing in 2029 fell by 23% from November 3rd to November 5th.

NVIDIA's other obligations also include: providing phased guarantees of $105 billion for a large data center project in Ohio, which is planned by OpenAI and SB Energy, and certain conditions must be met. NVIDIA has also committed to supporting up to $125 billion of a $500 billion credit plan for Wall Street financial institutions.

These obligations vary in form, and even if they are eventually fulfilled, it is unlikely that they will all become due at the same time. Stijn van Nieuwburg, a professor of finance at Columbia Business School ( Stijn Van Nieuwerburgh ), estimates that the total value of these commitments is approximately $400 billion.

This is a substantial amount of money, but compared to NVIDIA's market value of $4 trillion, which it still retains even after its stock price has fallen, it is just a very small portion. Van Nuysburg said, "The company must be on the brink of extinction for all these guarantees to be at risk."

"I don't want to say that this is a secure system, but I do want to say that there is a lot of equity buffer in the system at present," he said.

However, in the past few days, NVIDIA's troubles have widened the gap between it and its peers. This week, the stock prices of most neoclouds companies have rebounded, while NVIDIA's stock price has been falling. This indicates that investors currently believe that NVIDIA's problems are still internal to the company itself.

At the same time, the basic laws of economics are prompting other companies to attempt to enter NVIDIA's lucrative chip business. Van Neuburg said that AMD, Broadcom, Intel, Google, Microsoft, and OpenAI are all making efforts to develop their own AI chips.

Over time, they may replace NVIDIA's products. This could limit the economic impact of potential troubles brought by NVIDIA.

But Van Nieuwburg added that it is still not possible to completely rule out the financial risks that could arise if the AI transaction suddenly encounters obstacles. He made these remarks via Zoom during a break from a bi-monthly meeting of financial officials in Basel, Switzerland.

He said that central bank officials are “obviously, very, very anxious, and are seriously considering these issues.”