Nvidia drops 4%, leading chip stocks lower amid renewed worries of circular financing

Nvidia stock fell 4% on Monday, leading chip stocks lower amid renewed concerns about circular financing after reports that the company may backstop $250 billion in funding for OpenAI to lease computing power. Apple surpassed Nvidia as the world's most valuable public company as peer AMD dropped over 5%, and memory makers Micron and SK Hynix fell more than 2% and 6%, respectively.

What happened: Nvidia NVDA https://finance.yahoo.com/quote/NVDA/ stock tumbled 4% on Monday, leading the rest of the chip sector lower. As a result of the pullback, Apple AAPL https://finance.yahoo.com/quote/AAPL/ surpassed Nvidia as the world's most valuable public company. Peer chipmaker AMD AMD https://finance.yahoo.com/quote/AMD/ also declined more than 5% on Monday, and memory makers plunged, with Micron MU https://finance.yahoo.com/quote/MU and SK Hynix SKHY https://finance.yahoo.com/quote/SKHY/ dropping more than 2% and 6%, respectively. What's behind the move: Reports that the company may backstop $250 billion in funding for OpenAI OPAI.PVT https://finance.yahoo.com/quote/OPAI.PVT/ to lease computing power from a US data center project have renewed concerns about "circular" financing https://finance.yahoo.com/news/nvidia-says-it-isnt-using-circular-financing-schemes-2-famous-short-sellers-disagree-100021210.html , an arrangement where suppliers are also major investors in their customers. The potential deal would be one of the largest of its kind for the chipmaker, according to Bloomberg. The AI chipmaker also announced a strategic collaboration https://nvidianews.nvidia.com/news/sk-group-and-nvidia-expand-strategic-partnership-across-ai-factories-and-next-generation-memory with the conglomerate SK Group, the parent company of SK Hynix SKHY https://finance.yahoo.com/quote/SKHY/ , on Friday for a $500 billion-plus initiative spanning AI factories and next-generation memory. At the same time, concerns that China may be winning the AI race are putting pressure on the sector. The Information reported that a Chinese state-backed company began mass-producing a key piece of chipmaking equipment, sparking a sell-off in ASML ASML https://finance.yahoo.com/quote/ASML/ shares. What else you need to know: Worries of circular investments between a chipmaker like Nvidia and the AI developer that buys its equipment only add concerns about demand, AI valuations, and debt. Bloomberg noted the price of protecting Nvidia's debt https://finance.yahoo.com/technology/ai/articles/nvidia-credit-risk-jumps-swaps-132725734.html against default for five years rose by the most on record on Monday, stoking fears of rising funding commitments. Investors have also grown increasingly jittery over AI infrastructure spending, calling into question their return on investment. Last week, Alphabet GOOG https://finance.yahoo.com/quote/GOOG/ , GOOGL https://finance.yahoo.com/quote/GOOGL/ shares plummeted after the tech giant announced it would raise its capital spending outlook as it builds out its AI infrastructure. Investors are now awaiting earnings this week from Microsoft MSFT https://finance.yahoo.com/quote/MSFT/ , Amazon AMZN https://finance.yahoo.com/quote/AMZN/ , and Meta META https://finance.yahoo.com/quote/META/ , all of which are expected to announce further increases in AI-related spending. Any hint of a slowdown, however, would spell trouble for the companies that make semiconductors and related equipment. Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines ferre . Click here for in-depth analysis of the latest stock market news and events moving stock prices Read the latest financial and business news from Yahoo Finance