The companies at the center of the artificial intelligence boom are investing billions of dollars in each other — and analysts say that the increasing entanglement is adding to risk of an AI bubble.
Nvidia (NVDA) in late September said it would invest up to $100 billion in OpenAI (OPAI.PVT) as part of a partnership for the ChatGPT maker to use Nvidia’s chips to train and run its next generation of models.
This is just one of a flurry of deals among a tight web of Big Tech players that have been made public in the last few months. There’s also Nvidia’s $6.3 billion deal with AI data center firm CoreWeave (CRWV), a customer of the chipmaker in which it holds a 7% equity stake. There’s Nvidia’s reported $2 billion investment linked to its customer xAI (XAAI.PVT). And then there’s OpenAI’s own deals with Oracle (ORCL), CoreWeave (CRWV), and chipmaker Advanced Micro Devices (AMD).
Wall Street analysts say the agreements highlight a growing trend: AI infrastructure providers, led by Nvidia, are investing in their customers, who then turn around and buy more of the infrastructure providers’ products. In other cases, customers of infrastructure like OpenAI are investing in their suppliers.
Analysts interviewed by Yahoo Finance said there are two major concerns with the circular dynamic seen in the recent spree of AI investments. For one, the nature of the transactions could make it seem like there’s greater demand for AI than there really is. It also drives a closer link among the valuations of Big Tech companies — especially given that their respective stocks have soared on news of such deals — and intertwine their fates so that a hit to any one company would be bad news for the entire ecosystem, the experts said.
“The latest developments are very troubling,” said tech analyst and Bokeh Capital Partners chief investment officer Kim Forrest. “Vendors [of AI infrastructure] have gotten a lot of money, so they’re just shoving money back into their customers that may be poorly spent.”
Cornell professor Karan Girotra said instances of vendors and customers financially supporting one another reduce the “resilience” of the overall system: “If something goes wrong, then the effect falls through the system rather than [being] isolated.”
Legendary short seller Jim Chanos, famous for predicting the fall of Enron during the dot-com bust, also weighed in, writing in a post on X last week, “[Don’t] you think it’s a bit odd that when the narrative is ‘demand for compute is infinite’, the sellers keep subsidizing the buyers?”
The clearest examples of why such circular investments can be risky emerged during the dot-com bubble of the late 1990s and early 2000s. As the internet boomed, internet service providers (ISPs) rushed into the market of providing networks and access to the internet but quickly found themselves cash-constrained.
In moves similar to the recent spate of AI deals, suppliers of equipment — routers, switches, fiber-optic cables, and other hardware needed to make consumer internet a mass product — invested in the ISPs, their customers, by extending loans and taking equity stakes in those firms. The ISPs could then use the loans and equity financing to buy routers or cables from the equipment companies — transactions referred to as vendor financing.
On paper, business was booming, and the deals were huge. Between 1999 and 2001, equipment vendors such as Cisco Systems (CSCO), Nortel Networks, and Lucent extended billions in loans to internet providers and telecom carriers.
Because the ISPs were so heavily backed by the equipment companies but had such weak underlying financials, when capital dried up, dozens of internet providers went bust. With no one to pay off their loans, the equipment vendors were forced to write off the debt.
As the industry spiraled and the dot-com bubble burst, the bad investments vendors made in their own customers deepened the impacts of their crashes. Between March 2000 and the end of 2002, the tech-heavy Nasdaq Composite (^IXIC) fell more than 70% — a loss equivalent to more than $3 trillion, per Bloomberg data.
The parallels aren’t exactly the same. For one, major tech companies today have higher profit margins and have mostly funded their AI-related capital expenditures with strong internal cash flows rather than debt — but analysts say that could change as companies level up. One of the leading figures of the AI boom, Oracle, raised $18 billion in debt late last month.
Today’s critics worry that the entangled web of AI investments leaves the system too reliant on the success of OpenAI in particular. The ChatGPT maker has yet to turn a profit, and analysts worry what will happen if the company doesn’t live up to its revenue forecasts.
“[OpenAI CEO Sam Altman] has the power to crash the global economy for a decade or take us all to the promised land, and right now we don’t know which is in the cards,” wrote Bernstein analyst Stacy Rasgon in an Oct. 6 note.
And some of the latest deals are particularly concerning, DA Davidson analyst Gil Luria told Yahoo Finance, because AI companies like OpenAI and CoreWeave have taken on more debt or announced intentions to do so while receiving investments from Nvidia.
“They’re using that capital to raise debt,” he said, “It’s the levering up that’s the truly unhealthy behavior.”
Epistrophy Capital Research chief market strategist Cory Johnson also said such arrangements are a signal of an unhealthy ecosystem: “If your customer has to borrow money to buy your product, your customer’s not a good customer.”
To be sure, circular investments have existed since the inception of the AI market. Microsoft (MSFT) helped seed OpenAI with $19 billion worth of investments between 2019 and the present, while Amazon (AMZN) invested $8 billion in AI upstart Anthropic across two separate investments in 2024.
Some on Wall Street argue that such partnerships in the AI market are a good thing because they allow the necessary capital to support the AI infrastructure buildout to be deployed faster, potentially accelerating the path to a return on Big Tech’s massive investments.
“ I could argue that there’s like no better use of Nvidia’s cash right now,” Bernstein’s Rasgon said in an interview, speaking of its investments in its own customers.
“ I don’t think we’re anywhere close to bubble territory,” he added.
When Nvidia chief Jensen Huang was asked on a podcast recently about claims that deals like Nvidia’s investment in OpenAI — which spends billions as a Nvidia customer — look similar to the faulty deals of the dotcom bubble, he argued that OpenAI’s revenues and any investments the AI company receives are separate matters.
“[OpenAI] is likely going to be the next multitrillion-dollar hyperscale company, and who doesn’t want to be an investor in that?” Huang said. “My only regret is that they invited us to invest early on, and we were so poor that we didn’t invest when I should have given them all my money.”
Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laurabratton.bsky.social. Email her at laura.bratton@yahooinc.com.
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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The companies at the center of the artificial intelligence boom are investing billions of dollars in each other — and analysts say that the increasing entanglement is adding to risk of an AI bubble.
Nvidia (NVDA) in late September said it would invest up to $100 billion in OpenAI (OPAI.PVT) as part of a partnership for the ChatGPT maker to use Nvidia’s chips to train and run its next generation of models.
This is just one of a flurry of deals among a tight web of Big Tech players that have been made public in the last few months. There’s also Nvidia’s $6.3 billion deal with AI data center firm CoreWeave (CRWV), a customer of the chipmaker in which it holds a 7% equity stake. There’s Nvidia’s reported $2 billion investment linked to its customer xAI (XAAI.PVT). And then there’s OpenAI’s own deals with Oracle (ORCL), CoreWeave (CRWV), and chipmaker Advanced Micro Devices (AMD).
Wall Street analysts say the agreements highlight a growing trend: AI infrastructure providers, led by Nvidia, are investing in their customers, who then turn around and buy more of the infrastructure providers’ products. In other cases, customers of infrastructure like OpenAI are investing in their suppliers.
Analysts interviewed by Yahoo Finance said there are two major concerns with the circular dynamic seen in the recent spree of AI investments. For one, the nature of the transactions could make it seem like there’s greater demand for AI than there really is. It also drives a closer link among the valuations of Big Tech companies — especially given that their respective stocks have soared on news of such deals — and intertwine their fates so that a hit to any one company would be bad news for the entire ecosystem, the experts said.
“The latest developments are very troubling,” said tech analyst and Bokeh Capital Partners chief investment officer Kim Forrest. “Vendors [of AI infrastructure] have gotten a lot of money, so they’re just shoving money back into their customers that may be poorly spent.”
Cornell professor Karan Girotra said instances of vendors and customers financially supporting one another reduce the “resilience” of the overall system: “If something goes wrong, then the effect falls through the system rather than [being] isolated.”
Legendary short seller Jim Chanos, famous for predicting the fall of Enron during the dot-com bust, also weighed in, writing in a post on X last week, “[Don’t] you think it’s a bit odd that when the narrative is ‘demand for compute is infinite’, the sellers keep subsidizing the buyers?”
The clearest examples of why such circular investments can be risky emerged during the dot-com bubble of the late 1990s and early 2000s. As the internet boomed, internet service providers (ISPs) rushed into the market of providing networks and access to the internet but quickly found themselves cash-constrained.
In moves similar to the recent spate of AI deals, suppliers of equipment — routers, switches, fiber-optic cables, and other hardware needed to make consumer internet a mass product — invested in the ISPs, their customers, by extending loans and taking equity stakes in those firms. The ISPs could then use the loans and equity financing to buy routers or cables from the equipment companies — transactions referred to as vendor financing.
On paper, business was booming, and the deals were huge. Between 1999 and 2001, equipment vendors such as Cisco Systems (CSCO), Nortel Networks, and Lucent extended billions in loans to internet providers and telecom carriers.
Because the ISPs were so heavily backed by the equipment companies but had such weak underlying financials, when capital dried up, dozens of internet providers went bust. With no one to pay off their loans, the equipment vendors were forced to write off the debt.
As the industry spiraled and the dot-com bubble burst, the bad investments vendors made in their own customers deepened the impacts of their crashes. Between March 2000 and the end of 2002, the tech-heavy Nasdaq Composite (^IXIC) fell more than 70% — a loss equivalent to more than $3 trillion, per Bloomberg data.
The parallels aren’t exactly the same. For one, major tech companies today have higher profit margins and have mostly funded their AI-related capital expenditures with strong internal cash flows rather than debt — but analysts say that could change as companies level up. One of the leading figures of the AI boom, Oracle, raised $18 billion in debt late last month.
Today’s critics worry that the entangled web of AI investments leaves the system too reliant on the success of OpenAI in particular. The ChatGPT maker has yet to turn a profit, and analysts worry what will happen if the company doesn’t live up to its revenue forecasts.
“[OpenAI CEO Sam Altman] has the power to crash the global economy for a decade or take us all to the promised land, and right now we don’t know which is in the cards,” wrote Bernstein analyst Stacy Rasgon in an Oct. 6 note.
And some of the latest deals are particularly concerning, DA Davidson analyst Gil Luria told Yahoo Finance, because AI companies like OpenAI and CoreWeave have taken on more debt or announced intentions to do so while receiving investments from Nvidia.
“They’re using that capital to raise debt,” he said, “It’s the levering up that’s the truly unhealthy behavior.”
Epistrophy Capital Research chief market strategist Cory Johnson also said such arrangements are a signal of an unhealthy ecosystem: “If your customer has to borrow money to buy your product, your customer’s not a good customer.”
To be sure, circular investments have existed since the inception of the AI market. Microsoft (MSFT) helped seed OpenAI with $19 billion worth of investments between 2019 and the present, while Amazon (AMZN) invested $8 billion in AI upstart Anthropic across two separate investments in 2024.
Some on Wall Street argue that such partnerships in the AI market are a good thing because they allow the necessary capital to support the AI infrastructure buildout to be deployed faster, potentially accelerating the path to a return on Big Tech’s massive investments.
“ I could argue that there’s like no better use of Nvidia’s cash right now,” Bernstein’s Rasgon said in an interview, speaking of its investments in its own customers.
“ I don’t think we’re anywhere close to bubble territory,” he added.
When Nvidia chief Jensen Huang was asked on a podcast recently about claims that deals like Nvidia’s investment in OpenAI — which spends billions as a Nvidia customer — look similar to the faulty deals of the dotcom bubble, he argued that OpenAI’s revenues and any investments the AI company receives are separate matters.
“[OpenAI] is likely going to be the next multitrillion-dollar hyperscale company, and who doesn’t want to be an investor in that?” Huang said. “My only regret is that they invited us to invest early on, and we were so poor that we didn’t invest when I should have given them all my money.”
Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laurabratton.bsky.social. Email her at laura.bratton@yahooinc.com.
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
Click here for the latest technology news that will impact the stock market
Read the latest financial and business news from Yahoo Finance
