Goldman’s latest cash cow is all about funding the AI infrastructure boom
Wall Street’s largest banks are riding a lucrative new wave — bankrolling the AI gold rush. Goldman Sachs was a key facilitator in this week’s artificial intelligence funding announcements from both Nvidia and Intel . These are just two of several recent high-profile wins, providing a financial windfall for the venerable investment bank. All three of the stocks are major positions in the CNBC Investing Club portfolio. It started Monday, when Nvidia said that Goldman and five other financial institutions would combine efforts to raise $500 billion of financing to fund the AI buildout. The revenue-generating compute infrastructure serves as the cash flow-yielding collateral for those funds, much like commercial real estate or toll roads. Jim Cramer called the Nvidia idea, which is still a bit light on exact details on how all this would work, “monumentally positive.” Hours earlier, Intel announced a $15 billion common stock offering (later upsized to $20 billion), with Goldman as a joint book-running manager. The proceeds from the sale will help fund the expansion of Intel’s foundry as it seeks more chip contract manufacturing business. There have been rumors of big-name interest in Intel’s foundry because Taiwan Semiconductor , the world’s largest chip manufacturer, is maxed out on capacity. Last month, Intel won business from Fortinet to produce the cybersecurity company’s next-generation security chip. In the semiconductor industry, factories are called foundries. The Intel stock sale followed Alphabet ‘s June announcement that the Google parent was selling $80 billion in stock (later upsized to $85 billion) to fund its own AI ambitions. Goldman was at the wheel, helping to steer this one as well. As shareholders of Alphabet, we weren’t thrilled by the decision because it dilutes shares, but as Goldman investors, we saw it as another feather in its cap. Jim viewed Intel’s stock sale a bit differently. He still sees Goldman’s involvement as great for the bank, but also thinks the move gives Intel some wiggle room as the company is ramping up a major new revenue stream in third-party chip production. The disclosure of Intel CEO Lip-Bu Tan’s role as a major buyer in the offering was a nice bonus, as we like it when top executives demonstrate confidence with their own checkbooks. How Goldman benefits As a joint book-running manager, the bank captures fees across every step of these transactions. Goldman buys shares from the original issuer (Intel or Alphabet) at a discount and resells them to institutional clients (hedge funds, pension funds, and sovereign wealth funds) at the public offering price. The difference between what Goldman pays the issuing company and what it charges institutional buyers is the gross spread. That spread is divided into three buckets, which includes an underwriting fee for taking on the inventory risk, a management fee for structuring and timing the deal, and a selling concession for the sales desk that actually places the stock. This flows directly to Goldman’s Equity Capital Markets team, which is the group responsible for originating, structuring, and pricing public stock offerings. Goldman also positions its trading desks right at the center of the deal if it leads an offering. As investors adjust their positions and trade through newly available supply, Goldman garners revenue through bid-ask spreads and execution commissions. All of this feeds into Goldman’s Global Banking & Markets division – the firm’s largest by revenue. That’s where Goldman’s bread-and-butter investment banking franchise is housed, and is a big reason why we remain so bullish on this stock. “Our theme has been Goliath is winning when it comes to financing, and the recent environment really showed that Goliath is winning, perhaps more than previously appreciated,” Wells Fargo banking analyst Mike Mayo told CNBC. “Large banks are the ones that have the capacity to help finance large tech firms.” Chips as an asset class Traditional stock offerings aren’t the only ways to offset AI spending. Nvidia’s new funding conduit aims to treat compute infrastructure as an investable asset class. The goal is to allow Nvidia customers such as hyperscalers, frontier AI labs, and enterprises to get the money needed to acquire their hardware without tapping their own balance sheets. “These are revenue-generating assets now. They’re productive, they’re long-lived, they’re fungible, they’re flexible,” Nvidia CEO Jensen Huang said in a CNBC roundtable interview with top executives from all the financial players. Goldman CEO David Solomon told CNBC said that appetite for the asset class is already there. “You’re starting to see, in a sense, asset-based financing against this infrastructure build. That’s not surprising because these are real assets.” He added, “They have real value. You can put a tangible value on it, and there’s a lot of capital out there.” Goldman and the other five firms — BlackRock , Blackstone , Apollo Global , KKR, and Brookfield — are tasked with establishing financing platforms for these Nvidia customers. While the arrangement could provide top-line benefits across Goldman’s businesses through structuring fees, interest income, and secondary trading spreads, investors should treat any upside scenario with caution. There’s a lot up in the air, and details are sparse. Goldman signed non-binding memorandums of understanding (MOUs), not formal contracts, with Nvidia. Goldman’s capital allotment, logistics on financing, and end-customers haven’t been disclosed. Goldman declined CNBC’s request for comment. Weighing the risks Describing how the Nvidia initiative would work, BlackRock CEO Larry Fink used a comparison from the past. He told CNBC in that roundtable interview: “[When] I look at the financing of data centers, this is the very beginning, like what it was when I started in the mortgage-backed securities market in the 1970s. And I look upon this as a net future for financial engineering.” Just as mortgages are compacted into tradable securities, the plan here is to package data center infrastructure into financial instruments that behave like bonds, complete with a secondary market and lower borrowing costs. That’s the pitch, at least. But for anyone who remembers the subprime housing meltdown — which preceded the 2008 financial crisis and the Great Recession — turning real assets into complex securitized vehicles inevitably rings a few alarm bells. Top banking analysts, including Mayo from Wells Fargo, aren’t bracing for a meltdown. “It’s a fair concern that aggressive expansion in new activities has the potential to create unanticipated risks and potential losses,” he said. While market participants need “a degree of healthy paranoia” about potential overinvestment, he added that Goldman “has been historically one of the best risk managers around.” To cushion potential downside, Jensen also said that Nvidia has the option to backstop up to $125 billion (around 25%) of potential financing deals. Solomon himself offered a pragmatic take on the market’s trajectory. “Will it be a straight line? No,” he told CNBC. “Will there be points when spreads widen out, and it feels like things are going too fast? Yes. Will the returns from all of these things be ample? Of course not. There will be winners and losers. But that’s what the capital markets do.” The Goldman CEO added, “There’ll be big companies that win. … There’ll be big companies that turn out to be not what people expected.” Some analysts said it’s reassuring to see Wall Street acknowledge and deliberate these risks ahead of time. “To me, what mitigates this is it’s a very-well known potential risk scenario, which I think, especially a risk manager like Goldman, should have a pretty good handle [on],” Bank of America’s Ebrahim Poonawala said. Bottom line While AI dealmaking provides lucrative fees for Goldman, it also binds Goldman’s stock narrative to the semiconductor capital expenditure (capex) cycle. In the short term, shares may experience heightened volatility driven by broader market sentiment around AI rather than fundamental banking performance. Just look at how shares have performed against the VanEck Semiconductor ETF . “The risk is that all of a sudden we wake up one day and the market cools on the AI theme,” Poonawala told CNBC. Mayo shared similar sentiments. “There’s a narrative in the current environment [that] as there is AI, as there is Goldman, and that was pretty unintentional.” Both analysts have a buy rating on Goldman. That being said, short-term volatility won’t push us out of any stock, especially not one as stellar as Goldman. While we can’t put a long-term read out on Goldman’s AI benefits, for now, it’s a boon to crucial lines of business. Plus, it has helped cement Goldman as one of Nvidia’s go-to Wall Street advisors. It’s never a bad thing to have the world’s largest company by market cap in your corner. The fundamentals on Goldman stock couldn’t look any better. As Jim put it recently, “Goldman Sachs is the premier investment bank in the world, and it is doing so incredibly well. I say own it as this is the best-single environment I have ever seen for my alma mater. Just so well run. I love it,” he said during the August Monthly Meeting. (Jim Cramer’s Charitable Trust is long GS, INTC, NVDA, GOOGL, MSFT, AMZN, META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
