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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 (ORCL) 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 (CRWV), 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 (MSFT), 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 (NVDA) 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

1. It’s different this time
2. 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.

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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.

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