I’m taking a break from my usual weekly market monitor format to do a deep dive on a hot topic this week, which is Circular Investing in the AI Ecosystem.

Recent financial press coverage highlights significant concerns regarding the increasing prevalence of "circular deals" among dominant Artificial Intelligence (AI) players, specifically OpenAI, NVIDIA (NVDA), and Advanced Micro Devices (AMD). These large, reciprocal financing and purchasing agreements—often structured as equity investments or stock warrants tied to massive hardware deployments—are escalating concerns that the trillion-dollar AI boom is being artificially propped up by interconnected business transactions that bind the fates of numerous companies together.

NVIDIA agreed to invest up to $100 billion in OpenAI, which, in turn, committed to filling those data centers with millions of NVIDIA chips. Just weeks later, AMD, a competitor, entered a partnership with OpenAI involving warrants in AMD stock (up to 160 million shares) in exchange for a deployment commitment of 6 GW of AMD GPU hardware.

Skeptics warn that this structure creates a "mirage of growth" and mimics vendor financing practices prevalent during the dot-com boom, which obscured the true nature of product demand. The risk of an AI bubble is heightened because OpenAI, despite driving this massive investment spree, is burning through cash ($2.5 billion in the first half of 2025) and does not expect to be cash-flow positive until near the end of the decade. A weak link in this system could threaten the viability of the whole industry, leading to a sharp correction in tech stocks.

The Complex Web of Circular Relationships

The AI ecosystem is increasingly defined by massive strategic partnerships between chip suppliers and the leading AI developer, OpenAI.

NVIDIA and OpenAI: The Largest Commitment

The strategic partnership between NVIDIA and OpenAI was announced on September 23, 2025, involving a potential investment of up to $100 billion in OpenAI over time. This investment is tied to OpenAI’s plan to deploy at least 10 gigawatts (GW) of datacenter capacity using NVIDIA systems, making it the largest infrastructure deal ever attempted in the sector. The first 1 GW is anticipated to come online in the second half of 2026, leveraging Vera Rubin systems.¹

While NVIDIA stated these investments would likely be for equity and not vendor financing or debt, and that the investment funds will not be used for direct purchases of NVIDIA products, the magnitude of the commitment in a major customer has significantly intensified worries over circular financing. Analysts note that the revenue uplift for NVIDIA from a 1 GW datacenter deployment would likely be larger than the investment itself, involving "several 10’s of billions of dollars of NVIDIA products". NVIDIA characterized this $100 billion deal as an opportunity to invest in the next “multitrillion-dollar” company.¹

AMD and OpenAI: The Stock Warrant Entanglement

OpenAI partnered with NVIDIA competitor AMD on October 6, 2025, with the intention to deploy 6 GW of AMD GPU hardware over a multiyear period, with fulfillment suggested by 2030.¹

In exchange for agreeing to deploy this hardware, AMD is granting OpenAI warrants in its stock (up to 160 million shares). These warrants vest in tranches as the infrastructure ships, with exercise prices rising over time. Critics argue this arrangement "feels even more roundabout than NVDA’s deal" because AMD is giving up its equity while receiving only revenue in return. The warrants will likely continue to fuel the "circular" concerns. However, OpenAI CEO Sam Altman stated the AMD deal is incremental to its work with NVIDIA, emphasizing the world needs "much more compute".³

Ancillary Deals Expanding the Web

The circular web extends to other major players in the cloud and infrastructure space.¹

• Oracle: OpenAI struck a separate $300 billion cloud deal with Oracle. Oracle is spending billions or tens of billions on NVIDIA chips to power the data centers being built for OpenAI, sending money back to NVIDIA.²
• CoreWeave: NVIDIA holds a 7% equity stake in the AI cloud provider CoreWeave, which uses NVIDIA chips. OpenAI has expanded cloud deals with CoreWeave to as much as $22.4 billion. NVIDIA has further agreed to buy any excess cloud capacity from CoreWeave through 2032.²

Investor Skepticism and Bubble Fears

The scale and interconnectedness of these deals are fueling serious investor alarms.

• Dot-Com Parallels: Analysts draw strong comparisons between these circular transactions and the vendor financing practices prevalent during the dot-com boom of the late 1990s, which were criticized for obscuring the true nature of product demand. Some advisers find the NVIDIA-OpenAI deal "especially reminiscent of the ones announced in the lead-up to the 2000 dot-com bubble burst".²
• Questioning Demand: Short sellers have openly questioned the market narrative, asking why chip sellers must constantly "subsidize the buyers" if the industry claims that "demand for compute is infinite". These related-party transactions risk artificially propping up the value of the firms involved and overstating the robustness of the AI ecosystem.¹
• Financial Sustainability: OpenAI is a cash-burning startup; it reported $4.3 billion in sales but burned $2.5 billion in the first half of 2025. CEO Sam Altman stated the company expects to invest "trillions" in physical infrastructure. This spending, which is outpacing monetization, is challenging for a firm not expected to be cash-flow positive until near the end of the decade.¹
• Systemic Risk: If AI productivity gains are delayed or limited, experts warn that a weak link in this tightly interconnected ecosystem could trigger a sharp correction in tech stocks^.1

Industry View and Investment Rationale

Despite the heightened risks, industry executives and some analysts defend the arrangements as strategically necessary.

• Demand Justification: Industry executives argue that these unorthodox business relationships are essential to meet the unprecedented surge in demand for AI services. AMD’s CEO described the partnership with OpenAI as a "virtuous, positive cycle". Some analysts are "not yet alarmed" because they believe AI demand is "both real and booming". They view the current period as a "rising tide" that is positive for all high-quality semiconductor players (NVIDIA and AVGO, and now AMD).³
• NVIDIA's Strategic Positioning: As the dominant chip player with a $4.5 trillion market cap, NVIDIA has the "pleasant problem" of managing massive cash flows. Investing in key ecosystem partners like OpenAI and CoreWeave is viewed as a way to secure its competitive position, gain insight into where AI innovation is headed, and put its cash toward "the most strategic parts of the ecosystem". The investment in OpenAI is regarded as potentially wise if OpenAI lives up to its aspirations, even though the deal is circular in perception or reality.³

Our View on Circular Investing

While the web of big AI companies investing in each other’s business is cause for concern, it’s too soon to call.  We recognize the parallels to the 1990s Internet  bubble, but we also see the AI leaders are building multi-billion dollar revenue streams very early in the product cycle.   For the moment, we believe that AI is a very powerful economic engine, and we are early stages of the AI economy.  

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Footnotes:

1. Stacy A. Rasgon et al., “NVIDIA (NVDA) and OpenAI: The King's largesse?”, Bernstein Research, Sept. 23, 2025.

2. Stacy A. Rasgon et al., “Advanced Micro Devices (AMD): OpenAI's tide lifts another boat?”, Bernstein Research, Oct. 6, 2025.

3. Rob Wile, “The AI boom's reliance on circular deals is raising fears of a bubble,” NBC News, Oct. 6, 2025.

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Researched and compiled with the assistance of Gemini 2.5. This newsletter represents our opined general assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future performance or results. The opinions and statements expressed are intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities or investment strategies to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. This material may contain estimates and forward-looking statements, which may include forecasts and do not represent a guarantee of future performance. This information is not intended to be complete or exhaustive and no representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. The opinions expressed are as of October 9, 2025, and are subject to change without notice. Investing involves risks. Past performance is not a reliable indicator of current or future results, and index returns do not account for fees. It is not possible to invest directly in an index.