Nvidia Corp. (NASDAQ:NVDA) just posted another record quarter, with revenue up 106% to $96.2 billion and profit more than doubling to $59.7 billion.

Howard W. French, a former New York Times Tokyo bureau chief who covered the aftermath of Japan’s bubble, says his first reaction was fear.

In a Foreign Policy column, French argues the financing structure forming around Nvidia increasingly resembles corporate Japan in the late 1980s.

The Worry Isn’t Nvidia’s Valuation

French notes the S&P 500 trades at about 23 times expected earnings, roughly a third of Tokyo’s multiple in December 1989. His concern is less about Nvidia’s valuation than the increasingly intertwined relationships between the chipmaker and its customers.

In August, Nvidia signed preliminary agreements aimed at mobilizing more than $500 billion of third-party financing for AI infrastructure. It has also agreed to guarantee up to $105 billion in lease and power payments supporting OpenAI’s 4.25-gigawatt Ohio data-center project.

Separately, Nvidia has committed $36 billion under cloud-service agreements with AI providers, and warns it may have to buy capacity they cannot sell.

Nvidia says many of these customers are growing faster than their balance sheets and credit profiles can support. The result increasingly puts Nvidia on both sides of the boom: selling the hardware while helping finance demand for it.

Where 1980s Japan Comes in

French sees a parallel with Japan’s late-1980s corporate system, where major industrial groups owned stakes in one another, financed one another and often kept supporting each other as markets weakened. Capital increasingly followed relationships rather than cash flow.

His concern is that Nvidia is starting to sit in a similar web, supplying AI companies while also investing in them and helping finance their expansion, even as profits from AI services have yet to catch up with the enormous infrastructure spending.

Japan’s technology was real. Its companies controlled about 80% of global DRAM production in the 1980s, yet the bubble still burst. The Nikkei did not regain its 1989 peak until February 2024, more than 34 years later.

French sees another threat to those returns in cheaper Chinese open models, which could drive down the economics of AI services even as Nvidia helps finance ever more expensive infrastructure.

Prediction Markets Still Back Nvidia

Polymarket traders give Nvidia a 76% chance of ending 2026 as the world’s largest company, with Apple Inc. (NASDAQ:AAPL) at 14% and Alphabet Inc. (NASDAQ:GOOGL) at 9%.

French concedes his analogy is imperfect. But Japan’s experience suggests technological dominance and excessive capital spending aren’t mutually exclusive.

For Nvidia, the risk is that the more it helps finance demand for its own chips, the more exposed it becomes if its customers ultimately struggle to make that spending pay.

Image: Shutterstock