Goldman’s latest cash cow is all about funding the AI infrastructure boom

Goldman Sachs is riding a lucrative new wave by bankrolling the AI gold rush. The bank's involvement in recent high-profile funding announcements from Nvidia and Intel is a key facilitator in this lucrative new wave. These announcements 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. 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