Please buy my product, and I’ll use the money to buy yours. 
Flurry of Circular Deals
The Wall Street Journal asks Is the Flurry of Circular AI Deals a Win-Win—or Sign of a Bubble?
- In the the strategic partnership announced in September by Nvidia and OpenAI, the company behind ChatGPT, Nvidia would invest as much as $100 billion in OpenAI, and that OpenAI is looking to buy millions of Nvidia’s specialized chips.
- OpenAI recently agreed to buy $300 billion of computing power from Oracle over about five years. It is far from clear how OpenAI will get all the money, or whether it would still be possible should Nvidia’s $100 billion investment fail to materialize. That in turn could mean Oracle has less money for Nvidia chips.
- AMD, a rival to Nvidia, was so eager to land OpenAI as a customer that it issued warrants for OpenAI to buy as much as 10% of AMD at a penny a share. AMD said it expects tens of billions of dollars of revenue, but it’s basically paying OpenAI to become a customer.
- CoreWeave, an AI-cloud infrastructure company that rents out data-center capacity, illustrates the industry’s complex ties. Nvidia owns about 5% of CoreWeave and sells chips to CoreWeave. Nvidia also committed to purchase any unsold cloud-computing capacity from CoreWeave through 2032, effectively backstopping its customer.
- CoreWeave’s biggest customer is Microsoft, which is an investor in OpenAI, shares revenue with OpenAI, buys chips from Nvidia and has partnerships with AMD.
- OpenAI also is a CoreWeave customer and shareholder, having made a $350 million equity investment in the company before its initial public offering.
- CoreWeave also has disclosed having some vendor-financing debt, but not the identity of the counterparty.
If this reminds you of circular investment in the dot-com era, it’s because it should. The Journal points out Lucent’s lending of billions of dollars to upstart telecom companies fueling Lucent’s growth.
When the financing went bust the scheme crashed.
Now, AMD is paying OpenAI to be a customer, albeit in a different way. The same is going on with Nvidia and OpenAI. But at least it’s not debt financed.
Nvidia’s More Questions Than Answers Deal
Reuters reports More Questions than Answers in Nvidia’s $100 Billion OpenAI Deal
Nvidia’s (NVDA), move to invest up to $100 billion into OpenAI at the same time it plans to supply millions of its market-leading artificial intelligence chips to the ChatGPT creator has little precedent in the tech industry.
Under the deal, Nvidia will be taking a financial stake in one of its largest customers, but without receiving any voting power in return, according to a person close to OpenAI. The ChatGPT maker will receive some – but not nearly all – of the capital it needs for its ambitious plans to build the sprawling supercomputers required to develop new generations of AI.Nvidia’s initial $10 billion investment would go toward a gigawatt of capacity using its next-generation Vera Rubin chips, with a build-out starting in the second half of 2026. The deal raises many questions. Here are five of the biggest ones:
Where Does the Rest of the Money Come From?
Nvidia has committed to investing in OpenAI to help it build 10 gigawatts of data center capacity, or about $10 billion per gigawatt. That leaves about $40 billion in additional capital required for each gigawatt of capacity OpenAI plans to build. OpenAI has not signaled whether it agrees with Huang’s cost estimates or, if it does, where it would procure the additional funds.
What Does it Mean for OpenAI’s Effors to Become a For-Profit?
OpenAI is a non-profit corporation, a structure that dates to its days as an AI research group. It has been looking to change to a more conventional structure that would allow it to more easily raise money and hold a public offering.
Reuters that Nvidia would be making a cash investment into OpenAI similar to other OpenAI investors. Moreover, Nvidia’s initial $10 billion investment will not begin until OpenAI and Nvidia reach a definitive agreement in the coming months.
What Does it Mean for OpenAI’s Valuation?
OpenAI is currently valued at $500 billion, and a person familiar with the matter told Reuters that Nvidia’s initial $10 billion investment for one gigawatt of capacity would be at that valuation.
But neither Nvidia nor OpenAI gave a timeframe for the entire 10 gigawatts of capacity coming online or for the $100 billion of investment to take place. Also unanswered is whether subsequent Nvidia investments in OpenAI would take place at OpenAI’s current valuation, or at the valuation of the company at the time Nvidia makes each investment.
What Does it Mean for Competition?
The deal between Nvidia and OpenAI could see Nvidia earmarking a significant number of its chips, which remain in high demand several years into the AI boom and access to which can determine success or failure in the field, to a single customer in which it is also a shareholder.
An important question is whether OpenAI’s rivals such as Anthropic, or even Microsoft, which competes with OpenAI to sell AI technology to businesses, will retain access to Nvidia’s chips. The deal also raises questions about whether AMD (AMD), which is aiming to compete with Nvidia in selling chips to OpenAI and others, will have a viable chance of selling chips to AI companies.
What Does it Mean for Oracle?
Oracle (ORCL),said earlier this month that it has signed hundreds of billions of dollars in contracts to provide cloud computing services to OpenAI and a handful of other large customers, which sent its stock soaring and made co-founder Larry Ellison one of the world’s richest people.
But one of the key questions lingering after that forecast – and a question that debt-rating firm Moody’s raised – is whether OpenAI has the cash to pay for the contracts.
What Does it Mean Synopsis
- It’s different this time
- It’s a bubble
Hundreds of billions of dollars are floating around in circular deals.
Can anyone tell me when, where, and how much actual profit comes from this?
Meanwhile, all of this investment flurry helped prevent a recession in 2025.
Related Posts
September 7, 2025: Electricity Costs Are Soaring and AI Will Make Matters Worse
Electricity demand for AI data centers is soaring. The result won’t be pretty.
October 14, 2025: Is AI a Magic Bullet or a a Doomsday Machine?
A Nobel Prize economist argues against extreme hype in both directions.
August 29, 2025: How Much Did AI Spending Boost 2025 First-Half GDP?
AI spending on computers and software is soaring.
Matthew Klein estimated AI added 0.6 percentage points to GDP in 2025 Q2. I came up with 0.9 percentage points, and Goldman Sachs estimated 1.1 percentage points.
https://www.wheresyoured.at/the-ai-bubbles-impossible-promises/
“Harvard economist Jason Furman estimates that data centers and software accounted for 92% of GDP growth in the first half of this year, in line with my conversation with economist Paul Kedrosky from a few months ago.
All of this money is being sunk into infrastructure for an “AI revolution” that doesn’t exist, as every single AI company is unprofitable, with pathetic revenues ($61 billion or so if you include CoreWeave and Lambda, both of which are being handed money by NVIDIA), impossible-to-control costs that have only ever increased, and no ability to replace labor at scale (and especially not software engineers)….
Today, I’m going to tell you, at length, how impossible the future of generative AI is.”
.
https://www.wheresyoured.at/the-case-against-generative-ai/
“Electricity demand for AI data centers is soaring. The result won’t be pretty.”
The rate in Burbank is going up 9% next year. City is on an accelerated plan to update a 4K volt system to a 12K volt system, because state green energy mandates.
I’ll buy your tulip, if you’ll buy mine.
Bravo!
The obvious issue in the Dotcom bomb was the lack of actual income from actual sales–clicks were key. The dotcoms expanded in number until they eventually imploded.
I suspect actual income will cause the same downfall of AI as the ‘mass’ gets bigger. Implosion in …4…3..2…1
This integrates well into the Palantir + Flock + Starlink + AI dystopia and is a key component in that “privatized” panopticon enabling a social credit system of control along with warrantless surveillance of all purchases.
Tether’s stablecoin touches 6.25% of the world’s population, says CEO
Oct 21, 2025
Tether has notched its 500 millionth user of its USDT Stablecoin, an achievement its CEO Paolo Ardoino said is “likely the biggest financial inclusion achievement in history.”
https://assets.zerohedge.com/s3fs-public/inline-images/019a0957-414d-7b51-ad0f-f9331d1f.jpg
Stablecoins Are WORSE Than CBDCs! with Mark Goodwin
Jul 21, 2025
https://www.youtube.com/watch?v=HVofc4j9flE
As covered in another video, even though no one is forced to used Stablecoins, its widespread adoption and convenience can cause alternative payment options to gradually disappear.
Want to judge its value to YOU? Look at the HUGE numbers of smiling suits surrounding Trump as he signed the “GENIUS” Act. As an added “benefit” it provides an eager market for small individual bites of treasuries, thereby extending the demand for treasuries and allowing continued fedgov deficit spending.
The names of the CARES act, Inflation reduction act, GENIUS act, big beautiful hill, have the opposite meaning of the acts effects from what I gather. It sounds like attempts to deceive Americans.
Yes
AI is useful but people are not ready to pay for it
so the investments are way overblown
I remember the dot.com bust. Someone paid 1 billion dollars for Dr Koop.com (Koop was the forgettable surgeon general at the time). Thing was DrKoop.com wasn’t even a real business….it was a website and a name. No profits, no growth potential etc etc. Same with AI.
Uh Yeah, I can tell you…
The profit to Oracle comes from revenue from sharing it’s massive data collection of the credit card processing it has purchased or provided data services for. Nearly the entire history of every charge card holder on earth for Open AI’s predictive spending or consuming analysis.
Then making the stuff cheaper and delivering it faster…
😉
And of course there will be only a few winners in AI and lots of bankruptcies and a nice market crash. The Fed will dump another bucket of liquidity on to save the day.
AI chips will get far more efficient and there will be lots of extra electricity.
Smart investors will front run the trades and make lots of money. Wash, rinse, repeat!
I’ll be driving my tractor with a big smile on my face…
Dumping liquidity/more debt doesnt save the day however, its just more inflation the country and people will be saddled with.
The rub for it all is money becomes more fungible in the age of infinite liquidity. When the Fed and Treasury went down the road of liquidity at any cost, we were destined for this place. I received a free Nvdiia DGX Spark today. The thing retails for $4000 but Nvidia is starting to mass market these to anyone who wants one. Stocks cant go up forever. It just feels like they can in the age of infinite liquidity.
Speaking of spark. I run copper nickle spark plugs instead of the precious metallic ones with names ending in num and ium. They run better, just need to change them more often. It gives me a look at what is going on with combustion and oil when I pull them.
Classically tech bubbles have lots of malinvestment, then a thinning of the herd. NASDAQ last time look a long time to recover. I have trimmed my tech holdings. I have also steered cash into high-interest federally-insured holdings. I still think, if enough things break, that will be smart. I was shocked when the Trump-affiliated Treasury managed not to implode us all in eh last crisis. Not so sure this time around. The ambient chaos level is amazing: volatile, steeply different future states of the world loom.
I’ll lend you money to buy my stuff. Great idea
Nvidia’s vendor financing strategy totals approximately $110 billion, which is a substantial portion of its revenue. This level of investment raises concerns about the sustainability of demand, as it mirrors practices seen during the telecom bubble, where companies lent to customers to boost sales, leading to significant financial risks when the market turned.
It’s all fun and games until one of the counterparties in the game of circular financing / musical chairs can’t pay. Only then will assets get marked to market and the TBTF banks bailed out. Everyone else licks their wounds or goes bankrupt.
Good observation on peak 2025 leveraged AI investment equivalent to the 2000 internet bubble. The ultimate effect of AI on the US economy is to reduce incomes (and total jobs) of wage earners reducing the ability for credit expansion at the economy’s base which is the sine qua non for growth of the US debt-based system.
How much leveraged debt from the real banking system, the shadow banking system, credit default swaps, hedge funders, derivatives, et.al exotic financial instruments support AI’s current lofty valuations? … At these valuations and leveraged debt, this a figurative house of cards …
Watch for a nonlinear crossing of the operative SPX/ACWI 7 April 2025 24/58/46/ 13 of 34-35 day :: x/2.5x/2x’/1.5x’ 4-phase fractal trend line.
Financial and accounting shenanigans are nothing new. General Eclectic used to report exchanges of goods and services between business divisions as sales. Investors caught on when profits and margins were not growing as fast as sales.
Oh, and there’s mark to myth where a loan or mortgage is accounted as 100% face value until it defaults.
Private equity and private credit can hold all kinds of stuff at funky valuations for a long time. Then they can do round-trip deals to prolong the extend-and-pretend. I think we are pretty far along in a cycle like that.
I think this accounting process is called Welching. Many Senior VPs trained in Welching went on to take the helm as CEOs of other large corporations.
When it becomes common belief that a bubble is happening, that usually just marks the beginning phase of the bubble. It may take years to actually pop.
I predict NVDA will double in price (currently $178) before it’s all over.
“The housing bubble in the 2000s became apparent around late 2004 and early 2005, when many economists began warning about the unsustainable rise in housing prices. Housing prices peaked in early 2006 before starting to decline.”
Markets are faster to react each time around. Of course, that could mean the bottom is hit and a rebound happens faster, with dip-buyers. There is still an awful lot of cash sloshing around for odd plays like that: a change of ownership, classically into pockets of very liquid, patient “haves” and “have mores.” Who knows how the peasants come out. But I can guess.
As a peasant, I can attest – we’re revolting.
Interesting read on the topic:
https://www.zerohedge.com/markets/here-batshit-insane-chart-sent-oracle-stock-soaring-25-after-hours
Zerohedge isn’t my favorite source, but the point of the article seems inarguable to me.
I’m located in Wisconsin, USA, and there’s a groundswell of opposition to the datacenters here. Microsoft got shouted down at a small community named Caledonia recently and canceled a planned datacenter.
Then, in Port Washington, there’s a fierce resident pushback against another planned datacenter. That one will probably go thru because the city ‘fathers’ have already signed off on it. The town denizens have little choice but to complain vociferously.
I want a nuke power source next to my property! Latest status symbol!
Tollsforthee, what was their objection to the data centers?
Buying from and selling to themselves in their make believe economy.
Have heard AI contributing +4% to 2025 GDP, AI averting recession indeed.
https://x.com/jasonfurman/status/1971995367202775284
“Investment in information processing equipment & software is 4% of GDP.
But it was responsible for 92% of GDP growth in the first half of this year.
GDP excluding these categories grew at a 0.1% annual rate in H1.”
Stocks Extend Momentum Meltdown As Trump Admin Mulls Massive China Export Ban
======
post from ZH
trump admin changes mind each and every 6 hours!
jesus!!!
Of the same mind for six whole hours? Stop exaggerating.
Silly wrabbit.
AI is merely yet another extension of the Dot Com.
Limitless free money has its consequences.
(Can you spell Long Term Capital Management?)
Foreigners are into US stocks heavily.
Circular firing squad, circle jerk, circular investment. None of those seem to have the best connotation.
Circular reasoning, circular dependencies (coding)…
I’d put “circular flow” in there as well, but the Keynesians would appeal … often using circular reasoning!
P.S. if you type in “circular i” in Google, “circular investment ai” is third result. The bubble is becoming common knowledge and is getting close to popping.
So that’s what oligarchs are for!
To keep us out of recession…….
Vendor financing. You scratch my back, I’ll scratch yours.
Open the pod bay doors HAL. I’m sorry Mitch, I’m afraid I can’t do that …
Good luck peeps!
It’s like they each have each other’s retail credit cards that can only be used in a particular store. Kinda like a Sears Card.
The irony of AI is that it promises to eliminate white collar jobs and save a ton of money, ok so you eliminate all the high paid white collar jobs, how are people supposed to earn money?
I think the AI bubble pops when electricity limits are hit and we’re rapidly getting there. It will be a choice between air conditioning and heating during summer/winter or AI generated porn. Tough choices ahead.
In other news..
Netflix down 10% on bad earnings. This is a core service most people keep to sedate themselves from the misery of their lives. If people are giving up their digital opium then things must be really bad out there.
But I’ve been wondering why Netflix hasn’t been using AI to redub all those foreign films in foreign languages into English. It would seem this is a simple and easy thing to do with AI but no one is doing it.
In the area I live..last I’ve checked there’s a high demand for skilled workers in constuction..plumbers,electricians,framers, etc…Z generation need to learn what is real money…
Just like how they needed to learn to code 10 years ago Grandpa? And when they all crowd into that market and it crashes what then? Also, go ahead and show us this high demand, because right now all of those fields are full too. Not that you’d know because you’ve been retired for years.
Over a working age life span (18-65) of 45+ years its quite likely that you’ll have to reinvent yourself skill wise more than once as you change careers often 2-3 times.
The days of hopping on the line at GM and turning a wrench for 40 years and retiring like your dad ‘Rivet Head Ron’ did are gone and they aren’t ever coming back.
If I asked you (or anyone) on here if the are good or comfortable with change I bet most would say they were. If that’s true then they should not fear having to change careers depending on what work is in demand.
So that’s a great plan Tim! Maybe people can just go rack up another 80k in debt to get another master’s degree for four years!
The problem with that thinking is that it’s not 1975 like it is in your head. People can’t just pivot careers because modern day careers, even in manufacturing where I work, require at minimum a bachelor’s degree. If that investment means nothing then what do you suggest everyone does? People like you want to turn this country from advanced manufacturing to being a dump like India where advanced careers basically don’t exist.
Incorrect. Like any technological improvement, AI enables information workers to Be More Productive, and earn more.
This frees up some currently-less-productive workers to Do New Things.
Those workers are freed to Create Additional Value, which Makes Everyone Better Off.
At some level there is a rate of creative destruction that is manageable by society, and at some level there is a rate that is not. And it may vary radically depending on what part of “society” one is at. Is it “this time is different?” Because one familiar customary saying, such as yours, cannot possible explain what will in fact happen.
Almost looks like the Deep State knows these circular deals will never be profitable, they know the valuations will eventually crash, but they are using the investor public money to fund and develop the most advanced AI intelligence network that will be superior to any foreign competition. Putin said some years ago that whatever nation controls AI will control the world. It’s a race between the superpowers to develop the AI super computer that will dominate the world.
Powell tightened policy in August, draining total reserves. Yet market momentum wasn’t thwarted until yesterday. Short-term money flows are now decelerating faster than long-term money flows. Unemployment to increase.
Yes, I noticed that too.
outside hardware (= nvidia) does anybody make any money by offering AI sh1it ??
can i see any revenue/ earnings on balance sheets?
ponzi scheme any one
Queue circle jerk: AI Porn Is Coming To ChatGPT In December.
They are all hoping to be “Lucky Pierre” stuck in the middle. Financial Preversion never turns out in real life like it does in fantasy.
One of these companies is sure to get a Financially Transmitted Disease, and take the whole thing down.
‘Oh what a tangled web we weave…’
Bill S
Actually I wrote up an article circa 2000 on just how much of the Major Company’s had their earnings overstated due to over-funded pension earnings recapture. With the bubble came bubble valuation earnings recapture.And it was a significant amount. (Am thinking in the order of 15-27% of reported “earnings”.)
And as I recall one could find corporate earnings were not able to keep funding the OPEX spends by looking into FED U6 table data.