Nvidia's Risky Business: A Historical Parallel
Original: Nvidia's Risky Business
Why This Matters
Nvidia's centrality to AI capex makes systemic risk analysis around its business model increasingly relevant.
Stratechery's Ben Thompson draws a parallel between Nvidia's current position and Jay Cooke's 1870s railroad financing scheme, which triggered the Panic of 1873. The piece examines systemic financial risks tied to AI infrastructure buildout and Nvidia's central role in it.
In a Stratechery analysis published August 11, Ben Thompson opens with the story of Jay Cooke, the financier who funded the Northern Pacific Railway beginning in 1870. Cooke, lacking institutional buyers for Northern Pacific bonds, turned to retail investors using mass-media tactics — funding 1,300 newspapers and employing 1,500 salespeople — to sell bonds at scale. When credit tightened globally in September 1873, following the Vienna stock exchange crash and silver demonetization, Cooke's firm collapsed, triggering the Panic of 1873, a multi-year depression, and decades of deflation. Thompson uses this historical episode — drawn from Liaquat Ahamed's new book '1873' — as a lens through which to examine Nvidia's current position at the center of AI infrastructure spending. The analogy suggests that Nvidia, like Cooke, sits at the nexus of enormous capital flows driven by speculative buildout, raising questions about what happens if demand assumptions prove incorrect or credit conditions shift. Northern Pacific itself survived multiple bankruptcies before eventually becoming part of BNSF Railway, acquired by Berkshire Hathaway in 2009 — a reminder that underlying infrastructure can outlast the financial structures built around it.