Investing.com -- Morgan Stanley initiated credit coverage of Nvidia (NASDAQ: NVDA) with a neutral view in a note Tuesday, arguing the chipmaker's use of its balance sheet to fund the wider AI ecosystem introduces risks that conventional metrics fail to capture.

"We initiate credit coverage of NVIDIA with a neutral view as exceptional growth turns balance-sheet strength into a strategic AI financing tool – and introduces new risks," analyst Lindsay Tyler wrote, adding that the tail "remains too early-stage, opaque, and sizable to step in."

The bank said Nvidia is deploying support more deliberately through residual value structures tied to a partnership worth more than $500 billion, a shell residual value guarantee, and a revenue-sharing and credit-support model.

As a result, Morgan Stanley said conventional leverage increasingly understates the credit story, with ecosystem support sitting in contingent, contractual and potentially off-balance-sheet forms.

It forecasts roughly $200 billion of all-in credit exposure by the end of calendar 2028, including about $170 billion of adjustments and contingent obligations linked to those mechanisms.

Even against that broader measure, the metrics hold up. Morgan Stanley calculates leverage of around 0.4 times and free cash flow after shareholder returns exceeding 100% of debt, moving to roughly 0.7 times and 15% under a plateaued growth scenario.

The bank said spread compensation has improved after recent widening but recommends patience, flagging more than $1 trillion of guided GPU and XPU-related financing as the key overhang.