Circular AI deals: win-win or bubble risk for Nvidia?
AI giants are investing in customers who then buy their chips and cloud. From Nvidia–OpenAI to Oracle and AMD, circular deals could falter if spending slows.
The AI surge has sparked an unprecedented wave of spending. Morgan Stanley estimates that by 2028, investments in chips, servers, and data centers could total nearly $3 trillion. In this episode of Bold Names, Andreessen Horowitz’s Martin Casado discusses whether this massive bet on AI will ultimately pay off. Photo: Alexis Green
The rise of round‑trip AI financing
The hottest AI players are striking round‑trip arrangements—funding customers who then spend that money on their chips and cloud services. The cash is enormous, the links are tangled, and the outcome could be either a flywheel or a fault line for the industry.
What “circular” financing means
At the core is “circular” financing: Company A provides capital to Company B, which then purchases A’s products. The funding can be equity, loans, leases, or other structures. The worry is that if enthusiasm for building data centers cools, companies like Nvidia and Microsoft could be hit twice—by shrinking sales and by falling values of the equity stakes they hold in key customers.
Echoes of dot‑com vendor financing
The pattern has echoes of the dot‑com era’s vendor financing, when telecom‑equipment makers lent to buyers so those buyers could afford their gear. Lucent Technologies became the cautionary tale, extending billions to upstart carriers like Winstar Communications. When those customers ran out of cash and collapsed, Lucent wrote off the debts and booked huge losses. At times, investors learned more about Lucent’s risk from customers’ disclosures than from Lucent itself.
Today’s circular web across the AI stack
Today’s circular deals aren’t usually straight vendor loans. Consider a few of the most watched relationships:
Nvidia ↔ OpenAI
Nvidia’s strategic partnership announced in September with OpenAI, the maker of ChatGPT: Nvidia said it would invest up to $100 billion in OpenAI, while OpenAI aims to buy millions of Nvidia’s AI chips. That’s not a loan for a specific purchase, but it does create a loop. OpenAI isn’t public and remains unprofitable, though a recent secondary sale implied a $500 billion valuation. Nvidia’s investment could help fund OpenAI’s build‑out—and Nvidia could then book revenue from chip sales. The companies said terms weren’t finalized or disclosed. Unlike classic vendor financing, Nvidia faces equity‑valuation risk but also potential upside.
Oracle ↔ OpenAI
OpenAI recently agreed to purchase roughly $300 billion of computing capacity from Oracle over about five years. How OpenAI will fund that commitment is unclear—especially if Nvidia’s proposed $100 billion investment doesn’t materialize. That uncertainty could ripple to Oracle’s own buying of Nvidia chips.
AMD’s warrant sweetener
AMD, eager to win OpenAI’s business, issued warrants allowing OpenAI to purchase up to 10% of AMD at $0.01 per share. AMD says it expects tens of billions of dollars in revenue tied to AI—but it is effectively paying to secure a marquee customer.
CoreWeave’s tightly coupled network
CoreWeave, an AI cloud‑infrastructure provider, shows how tight these ties can be. Nvidia owns about 5% of CoreWeave, supplies it with chips, and has agreed to buy any unsold CoreWeave cloud capacity through 2032, effectively backstopping demand. CoreWeave’s largest customer is Microsoft, which invests in OpenAI, shares revenue with it, buys Nvidia chips, and partners with AMD. OpenAI is also a CoreWeave customer and shareholder, having invested $350 million before CoreWeave’s initial public offering. CoreWeave has disclosed some vendor‑financing debt but not the counterparty.
The money flows across the broader AI stack are even more intricate. Morgan Stanley analysts, in an Oct. 8 report, mapped relationships among OpenAI, Nvidia, Microsoft, Oracle, Advanced Micro Devices (AMD), and CoreWeave; the arrows between them looked like spaghetti.
Upside, risk, and what could break
None of this is inherently improper. AI could be transformational, and the companies involved are racing to scale up infrastructure at record speed. If OpenAI and rivals eventually produce strong cash flows, today’s heavy spending could be vindicated. But investor patience has limits. If capital outlays keep ballooning while visibility on returns remains hazy, confidence may wane.
Circularity can amplify both directions: virtuous on the way up, vicious on the way down. The deals work—until they don’t.
And if the build‑out slows, the companies underwriting it may find themselves exposed on multiple fronts.
Headline
Circular AI Deals: Virtuous Loop or Bubble Risk?
