My phone is worth nothing to a bank

My phone is three years old.

It works fine. It takes good pictures. But no bank would lend me a dollar against it.

Old electronics make bad collateral. Everybody knows that… except, lately, Wall Street.

Amazon is talking to investors about a deal built on chips. It wants to move about $8 billion of Nvidia Grace Blackwell chips into a special-purpose vehicle.

The vehicle would borrow from investors to own the chips. Then Amazon would rent them back.

The chips wouldn't move. They sit in more than a dozen data centers across five states, including Nevada and Virginia.

Lenders do this with airliners all the time. A jet flies for decades.

So the question is simple. How long does a chip last?

Nvidia says its most specialized chips can earn money for a decade. Bankers put it closer to three to four years.

Every loan in this market is a bet on how fast a computer gets old.

And Nvidia now updates its chips every year.

I have no idea who's right. But I know which answer the loans need.

That's what worries me. A jet's value fades slowly. A chip has to compete with its own replacement next year.

So this week we follow the people lending against computers. And the guarantees they're asking for.

This connects directly to the question of how long a chip lasts.

CoreWeave closed an $8.5 billion facility earlier this year. It was the first investment-grade loan backed by GPUs.

It earned an A3 rating. But Reuters reports the rating rests largely on Meta's contract payments.

In other words, the lenders trusted the tenant. The chips came along for the ride.

Broadcom did something similar for Anthropic. It backstopped more than 80% of a $35 billion financing structure. That's what pulled in the debt investors.

So the strongest deals in this market have a giant standing behind them. Take the giant away, and I'm not sure what's left.

And here's where it spreads.

Nvidia built its new financing plan around chip-backed loans. Jensen Huang wrote that it would ease worries about circular financing… when a company helps pay for purchases of its own products.

The lenders want more. Banking sources told Reuters that some want bigger guarantees than Nvidia first outlined.

One source said tens of billions of dollars of deals in the pipeline will likely carry strong guarantees and contracts.

"Wall Street is much more conservative." Tony Trzcinka, Impax Asset Management

Nvidia has done this before. It gave a residual-value guarantee to support financing for SB Energy's Ohio data center project, according to S&P and Moody's.

A residual-value guarantee is a promise about what something will be worth later. Here the seller makes that promise about its own product.

That's what worries me. When the maker has to back the resale price, the lenders don't trust the resale market.

Meanwhile, Amazon is charging more to rent out the chips it already has.

It announced a roughly 15% price increase on EC2 Capacity Blocks. That service lets customers reserve Nvidia chips, from the older A100 to the newer B300.

One machine with eight H100 chips lists at $41.528 an hour in major U.S. regions.

Rents are rising. So you'd think Amazon would want to own every chip it can.

But it's borrowing everywhere. It took a $17.5 billion term loan in June. It sold £4.25 billion of debut sterling bonds in September. Its bond sales this year come to nearly $100 billion, the most of any big cloud company.

So the leaseback is one more source of money. Interesting that it's the one that moves the chips themselves off the balance sheet.

Three more things worth keeping track of…

Norway is leaning harder on its savings. The government plans to spend 608.4 billion crowns, about $63.6 billion, from its oil fund in 2027. That's up from a revised 583.4 billion this year. A fund built for future generations now covers more than a quarter of state spending.

Meanwhile, India just turned. Its central bank raised the repo rate to 5.50% from 5.25% on Wednesday, its first hike since February 2023. It also switched its stance to "calibrated tightening." The rupee traded at 96.36 per dollar that day.

And Saudi Arabia expects its economy to shrink. Its own pre-budget statement sees real GDP falling 3.6% in 2026, mostly from lower oil activity. Non-oil activity rose to a record 57.3% of GDP. We'll see.

Computers used to be rented.

In the 1970s, one of the hottest finance companies in San Francisco did just that. Itel was founded in 1967. It leased IBM-compatible mainframes to big companies, often cheaper than IBM.

By 1979, Itel had written $1.7 billion of leases. Only IBM had more.

The model was simple. Buy the machine, lease it out for years, collect the rent. It works as long as the machine stays worth renting.

In January 1979, IBM announced a new line called the 4300. It set new price and performance levels. Customers wanted the new machines, and older equipment fell out of favor.

Itel's computers didn't break. They just got old in one announcement.

Itel lost $443.3 million in 1979.

The damage reached London. Lloyd's had insured Itel against some of those losses, and Itel's collapse swamped it.

By early 1981, Itel's debt had grown to $1.3 billion. That January, it filed for Chapter 11.

Leasing wasn't the problem. Airlines lease planes every day. The problem was the gap between how long the lease ran and how long the machine stayed wanted.

A lease on a computer is only as good as the next model. And somebody always ships a next model.

We'll see.