This reminds me of around 2002 when I wrote an article looking at how all the web behemoths at the time were claiming profitability through ad sales, but actually the vast majority of ads were from one web behemoth advertising on an other's site and vice versa.
This is How Larry Elisson beat Musk for a short while although Oracle was struggling.' The deals among Oracle, Nvidia, and OpenAI have raised concerns about their circular and potentially risky nature. Oracle is reportedly spending tens of billions on Nvidia's advanced chips, Nvidia plans to invest up to $100 billion in OpenAI, and OpenAI uses Oracle's cloud infrastructure through Microsoft's Azure, creating a closed loop of financing and business. Some analysts warn this creates a reflexive loop or "dangerous bubble" where valuations may be inflated artificially by the circular flow of capital and resources, reminiscent of past booms that ended in sharp market corrections.
Is it fair to say OpenAI is in a sense “washing” the money passing between Nvidia and Oracle? And instead of taking a cut in the traditional money laundering they are enjoying massive valuation gains?
When the fed investigates this does it matter if one of the 3 companies is not a publicly traded company?
I guess you could see it like that but I don’t think it’s “wash trading” in the sense that they’re coordinating it. I don’t really know what the fed would investigate here.
>By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"
That's not how Ponzi schemes work. Yahoo had a defacto _monopoly_ and the market had bad discovery leading to bad price information. There was no point at which the internet was /not/ worth investing in and everyone who had experience with it knew that.
The real problem seemed to be that you can only put so much money into pets.com before it becomes stupid. You had more short term investment capital than could be _effectively_ spent at the time. The long term players, as usual, avoided the Archimedian idealism, and were heavily rewarded anyways.
Why is it so popular to "akshually, Ponzi schemes are different!" these days?
Words have meaning in context, and calling something a "Ponzi scheme" these days means any pyramid-like system that only works as long as new investors come to the table, because that new investor money is the sole source of gains for earlier investors. But once you run out of new investors, which is inevitable, the whole thing collapses. What pg described was exactly a Ponzi scheme in that sense, even if it wasn't a deliberate scam. And that's very different from other types of business ventures that eventually fail because of the more "normal" reason that they just don't gain traction.
This incest investing is pretty telling. The whole economy is about to get burned- doubly so with DJTs tariffs and bonds not looking like the safe haven they usually are during turbulent times.
“We’re now locked into a particular version of the market and the future where all roads lead to big tech,” says Amba Kak, co-executive director of the AI Now Institute, which studies AI development and policy. Indeed, the success of major stock indexes—and perhaps your 401(k)—is resting on the continued growth of AI: Meta, Amazon, and the chipmakers Nvidia and Broadcom have accounted for 60 percent of the S&P 500’s returns this year."
All clearly designed to cash in on the speculative value being given to AI companies.
Strategically I thought OpenAI's deal of getting 10% of AMD for driving their stock price to $600 was a pretty clever way of creating $97 Billion from nothing - effectively paying for the GPUs they'd purchase.
At the same time I would've thought this insider pump and cash-in strategy would be somehow illegal, but I guess anything goes with this administration.
People are bringing up the AMD deal but isn't that giving it too much credence? The deal hasn't had any material consequences yet apart from stock market fluctuations. The bigger problem for me is that AMD doesn't seem like is going to be a player of note in the AI sphere. So this deal like many other big money AI deals look like optics to me.
I don't understand why they are calling these deals circular. OpenAI is buying Nvidia and AMD chips. Oracle is also buying Nvidia chips. OpenAI is buying datacenters from Oracle, which will be powered by the chips Oracle buys from Nvidia. This is one directional: hardware makers (Nvidia and AMD) sell either to datacenter makers (Oracle), or to AI firms (like OpenAI). That's it. No circular deals.
But "circular deals" has such a nice ring to it, that you hear it everywhere nowadays. People are just hungry for negative soundbites.
A stronger counterpoint to the circular deals suggestion is at the end of the article, which reads
> Michael Intrator, CoreWeave’s CEO, acknowledged the circular financing worries in a recent interview with Bloomberg News, but said the public concerns will dissipate as more businesses adopt AI.
> “When Microsoft comes to us to buy infrastructure to deliver to its clients who are consuming 365 or Copilot, I don't care what the narrative is about circular financing,” Intrator said. “They have end users that are consuming it.”
It's on you to decide then if end users are actually getting value / paying for AI products.
"Brutally honest and cheerfully sarcastic insights on Microsoft’s low-code and AI technology, business apps, and the business of software - written by Jukka Niiranen"
What credibility does this guy have? Sounds like someone that has an axe to grind.
In the end with most of these deals its the shareholders paying through market cap dilution. Given the current market structure (the big companies are tech companies) there's PLENTY of capital for OpenAI to fund their expansion.
They've discovered a cheat code IMO. Instead of using and raising money themselves, use their reputation/popularity and use their suppliers market caps (e.g. NVIDIA, AMD, etc). The deal makes sense as long as the value projected to be added (i.e. via efficiency gains, loss of jobs, changing society, etc) exceeds the capital dilution for the supplier; they use their equity but the leftover equity value increase makes up for it.
Given all the passive investing, and funds invested in the top tech companies this is a VERY large pool of capital. It however increases leverage if the value doesn't materialise.
I agree with your general point: there is a tendency to group not least these deals together without distinction as confirmation of a pre-existing belief that the AI bubble is soon to collapse. The latter certainly might be true, but we should be careful about too quickly deciding what evidence supports it. I am inclined to strictly separate:
(a) the NVIDIA deal as a vendor subsidizing one of their largest clients, which perhaps signals market weakness;
from (b) the AMD deal as a non-market-leading vendor trying to entice a new enterprise client, who will only be able to use AMD's chips for serious training after significant (and risky) collaboration to improve their product offering.
This distinction is important to me because I see more concrete evidence for a possible material drop in NVIDIA's business short- to medium-term than a collapse of the sector as a whole. The chips act clearly shut them out unexpectedly from their second largest market and now it seems likely that Chinese chips will be competitive for training sooner than expected. Indeed, if Chinese AI firms are suddenly able to obtain even a roughly approximate product at considerably less cost, OpenAI will suddenly find themselves at a cost if not compute disadvantage to their Eastern competitors. It isn't a surprise, then, that OpenAI is now looking to reduce their present vendor lock-in with NVIDIA.
Overall, it's not great for the latter if they lose access to their second largest market, suddenly have viable competitors in their home market, and either lose some of a major client's business or have to significantly reduce pricing to retain it.
Yes. OpenAI is also investing in AMD. This was discussed yesterday on HN, following some very good explanation by Matt Levine at Bloomberg. This is a way for one party to reduce some risk, by enjoying some upside in the equity of the counterparty.
But this is not circular. Circular would be if I sell you an apple worth $0.25 for $2.00, and then you sell it back to me for $2.00, or other similar amount, and I get to mark all the apples in my inventory at $2.00 and show a huge profit (on paper). One can create variations of this blatant deal. Like I sell you some rubber for 10 times the market price, you make a balloon and then I buy the balloon for 10 times the market price. I may not have other balloons in my inventory, but plenty of rubber, and I show some nice profit. One can imagine other, fancier deals.
But in the case of AMD and NVidia, and OpenAI and Oracle, the direction is clear. OpenAI has a clear need for compute. They can buy it directly from NVidia and AMD, or indirectly from Oracle. They can buy it with hard cash (of which they don't have that much), or with their own equity, or some form of deal that offers the seller an upside in OpenAI's equity.
But there is not back and forth buying of the same item, or of rubber/balloons. All the deals seem legit. Is it possible that all the future compute will not be needed, because the AI craze will fizzle. It is, lots of things are possible. But that's general business risk.
> But this is not circular. Circular would be if I sell you an apple worth $0.25 for $2.00
When you draw a circle on a piece of paper do you put your pencil to the paper, start drawing a curve, stop and write the word FRAUD, and then complete the curve? Or do you just draw a circle?
I’m assuming that people are saying “circular” in that it looks like the money goes in a circle. (For one example) Nvidia invests in Lambda, Lambda buys GPUs from Nvidia, Nvidia leases GPUs back from Lambda, Lambda uses the revenue from leasing the GPUs to Nvidia to raise debt to buy more GPUs from Nvidia…
This is how financing works. When you buy a house, you get a mortgage from a bank. It is unusual to get a mortgage from a seller. It would feel a bit circular, right? But that is exactly what happens most of the time when people buy a car. They get a loan from the same company that sells them the car. Is that circular?
When you replace people with companies, the financing can become much more complex. The example you provided with Nvidia and Lambda seems quite reasonable to me. Here's an example that happens every day in the world of housing: banks lend money to house buyers. Then they package the mortgages and sell the resulting mortgage back securities. Then they take the money from the proceeds, and give more loans, and package them and create more mortgage back securities. Seems circular, right? But that's just how business is done. There is no Ponzi aspect to this, or fraud, or smoke and mirrors. It's just every day business. Nobody labels that as being circular.
When people buy a car they sometimes get a loan from the auto manufacturer’s financial services arm. What they don’t usually get are warrants struck at a penny for 10% of the manufacturer.
You sound like you know what you’re talking about. I only think I know what I’m talking about. Help me understand: What am I missing in the OpenAI / AMD deal that makes it non circular?
The AI startup valuation largely is. I feel it quickly becomes circular because people make projections purely on other projections since the world is too impatient to wait and find out.
A single hamburger store is never going to be projected to have a billion dollars of revenue because people understand the total addressable market. Doesn’t matter how good the burger is.
The AI stuff is too new that people don’t have a firm grasp on the costs and profit opportunities. They don’t really even know how to define the TAM. Too many unknowns. Entire classes of labor could be replaced by AI —- or perhaps not.
With little grounding, it quickly becomes a circle of hype.
I don’t know what to tell you guy, but when people see money moving in a circle in a deal there is a good chance that “circular deal” might pop into their heads. Because it’s a deal that is shaped like a circle.
> Is that circular?
Doesn’t really seem so because at the end of the day the money goes from me to them. I don’t get my money back, I get a car in exchange for my money.
Also this deal didn’t begin with the manufacturer purchasing shares of me before offering me debt to buy a car from them.
>But that is exactly what happens most of the time when people buy a car.
Your car manufacturer leases your car back from you? And you use that revenue to raise debt to buy more cars from them? What manufacturer are you doing this with? What do you end up driving?
How are these "circular deals" different than Boeing (and other heavy civilian equipment makers) providing financing on purchases? My point: Is this simply clutching pearls over the AI/LLM bubble, or is there some substance to this concern?
And another: How does it compare against the new breed of Bitcoin treasuries, like Strategy (MSTR.OQ)? As I understand, Strategy uses secondary offerings to continuously see more shares, then uses the capital to buy more Bitcoin.
There is some circular financing going on, but AI accelerationists think this will be offset by demand, value, and adoption in businesses. Hence these deals are warranted for the incoming demand.
For an interesting interpretation of the recent AMD-OpenAI deal, see Matt Levine's column from a few days ago:
> OpenAI: We would like six gigawatts worth of your chips to do inference.
> AMD: Terrific. That will be $78 billion. How would you like to pay?
> OpenAI: Well, we were thinking that we would announce the deal, and that would add $78 billion to the value of your company, which should cover it.
> AMD: …
> OpenAI: …
> AMD: No I’m pretty sure you have to pay for the chips.
> OpenAI: Why?
> AMD: I dunno, just seems wrong not to.
> OpenAI: Okay. Why don’t we pay you cash for the value of the chips, and you give us back stock, and when we announce the deal the stock will go up and we’ll get our $78 billion back.
> AMD: Yeah I guess that works though I feel like we should get some of the value?
> OpenAI: Okay you can have half. You give us stock worth like $35 billion and you keep the rest.
I would be convinced that he's some sort of super well calibrated financial article AI engine (due to consistency of output and breadth of coverage), except that I've been reading his column long before LLMs were on the scene.
There's no way someone would be stupid enough to part with $x worth of product and $ 0.5 x worth of stock in exchange for $x, is there? Honestly, it's stupid to even make such an offer. What prevents AMD from turning it around on them?
> AMD: Oh, since you put it like that, why don't you pay us $x for the chips and give us $ 0.5 x worth of stock? When your market cap rises by $ 0.5 x you'll get the money for those stocks. And hell, it might even rise further, giving you back some of the money for those chips. You're really robbing me blind with this deal, you'd be a fool not to take it!
>What prevents AMD from turning it around on them?
Matt's telling is a little facetious, so the exact negotiation probably didn't go like that. More importantly, OpenAI has better options. If they want to pay AMD cash for chips, they could do that without also giving up their equity. The same can't be said for AMD. They're the second choice when it comes to GPUs, and they're desperate for market share, so they're willing to cut deals like this. Without this deal OpenAI probably would have bought Nvidia chips with cash.
AMD might do it just to try and be (stay) relevant in the market. Prior to this, discussions about AMD were slim to none, "just another inference card manufacturer". Now they're shining in the spotlight. Mission accomplished.
If you really think about it though, inference is the end goal for most AI models. So I don't see "inference only" being necessarily bad, especially if you get more bang for your buck.
Does he explain why the valuation of the company would go up by $78 billion on the public news that AMD agreed to give $78 billion of goods to OpenAI for free?
It validates that MI450 works. Jensen was saying other GPUs are so bad that companies wouldn't even take them for free and then OpenAI said no, we actually will take AMD GPUs for free. They're not that bad.
Oh this just seems like the typical financial dealings that City of London invented to obfuscating ownership of holdings half millennium ago. Some would event argue this obfuscation what transferred power from the military to bankers. And it is how we end up in this transnational corporation where the public really have no idea who is owning what and who is actually running the show here.
Now we are just transferring the power from bankers -> tech/AI.
This reminds me of the AOL Time Warner merger. "Back in the day", America Online (AOL) had a valuation large enough to pull it off:
It was the largest merger in history when completed with
the combined value of the companies at $360 billion.[0]
After less than a decade, once ISP's became a thing, the AOL part of the new company shriveled into nothing and was spun off. It still exists, in name if not anything recognizable to what it once was.
It’s just AMD levering up on its on stock. Similar to MSTR. AMD is taking a loan against its own shares to build gpu’s hoping to rent them out via OpenAI in the future. No point in betting against it, because it can’t get margin called until OpenAI goes bankrupt. Which isn’t happening until OpenAI is worth $10 trillion first.
From the OpenAI side, it’s an amazing deal. $35B profit in one day… at a pe of 30, it’s already worth a trillion if it can repeat similar deals every year.
"AI companies say these kinds of large, reciprocal, and sometimes overlapping deals are what's needed to meet growing demand for their tech. But as more and more money gets invested in the space these unorthodox business arrangements are also raising flags for industry analysts who are starting to wonder: Is the trillion-dollar AI market being propped up by the industry itself?"
Upvote because can someone explain to someone as dense as me, whether or not this is likely to make some likely AI bubble worse? Is this just how industry allocates capital?
Part of what's concerning here is that the deals are conditional. OpenAI must meet XYZ conditions before cash/stock/etc is transferred, and the conditions are pretty hard to meet.
The money between OpenAI, Nvidia, Oracle, AMD is not circulating. There is no cashflow, only future commitments that may (and quite likely will) collapse. Yet the stock market & media react as if it's a sure thing. Even in the criticisms of these deals, the hype is affirmed.
This is the same problem as Enron's accounting, minus the fraud. (No need for fraudulent accounting when people simply don't read the fine print.)
Is it worse than the dot-com bubble? I remember everyone and their mom who knew HTML could get hired, and there were way more companies that went IPO during the dot-com bubble, like theglobe.com.
AI is a bubble, but is it worse than the dot-com bubble or the real estate bubble in 2008?
The money is allocated by institutional investors. They buy the stock, the companies trade their more valuable stocks amongst themselves for various deals. If institutional investors stop investing then the flow of deals stops & the bubble pops. There is nowhere else the institutional investors could park their money other than tech so I don't think the bubble is going to pop any time soon. But infinite growth is obviously a logical & physical impossibility so eventually there will be a correction but whoever says they know exactly when that will happen is lying & they'd be better off buying lottery tickets to cash in on their ability to predict the future.
Personally think this makes a tech bubble a contagion for other parts of the financial industry - especially if institutional investors take the "easy" trade that everyone is doing and add leverage to it.
Now once these folks don't get 800B per year in revenue and the money runs out, all of the banks go as well. But don't worry - they'll get bailed out with our money...
Yeah I spoke to my wife a few min ago about these deals and other indicators of a bubble. We’re updating our 401k’s and the old college fund brokerage account in the morning and have agreed to not make any additional changes until Jan 2027. Going to sit out a year and see what happens.
These sorts of outlooks are notoriously hard to predict.
Paul Tudor Jones (one of the most successful investors of our time) is of the mindset that if anything we are about to see equity appreciation far in excess of what we have seen for decades.
If that's the case, right when you're looking to rebalance your portfolio, you're going to be looking at a much more difficult decision, having already missed out on price appreciation that would be quite useful in padding downside risk...
Perhaps just step away from market cap weighted index funds as a long term adjustment. That's something that with a proper basic framework is advisable as a general portfolio management approach as well. (I have some SMLF - Smallcap Quality/Value, Berkshire, generic Global Equity exposure, not for outright returns, but to lower exposure to the concentrated passive market cap weighted indexes and diversify risk exposures).
Trend Following exposure is a great add as well, since it is negatively correlated with risk assets in many macro/market regimes.
Probably healthier to address your very real concern with modifying the long-term portfolio design rather than take a short-term market timing approach which is more of a negative expected value.
Equities in the US are priced in dollars. If you think the dollar is going to lose value(because the government is led by people who have repeatedly told you this is their goal) then you expect stocks to rise commensurate with the devaluation of the dollar. I am not a bitcoiner or saying the USD is done for, but it seems clear that the dollar is weakened and will continue to weaken and this is a significant risk for folks like me with minimal exposure to stocks and precious metals.
If we end up with inflation rather than a market crash, this could be quite costly? Gold is up 50% this year, which hype is more correct than the other?
On the surface, the circular financing seems worrying but once you dig into it, it seems quite benign, tbh. NVIDIA is handing out GPUs into OpenAI, in return for stock/future revenue, whichever way you want to slice it. OpenAI has wonky unit economics, yes, but they're growing at ~100% YoY, so it all checks out, if you ask me.
The part that I think may have some credence is that it may be a way to prop up huge profit margins that may persist for longer than they would otherwise in lieu of further commoditization and competition.
If NVIDIA has a stake in the company, they are less likely to do something like start brewing inference chips in house with the help of the foundry partner and a provider of vanilla chip designs. The company also gets a huge cash injection that is somewhat contingent on not doing that, and hey, they have a fresh pile of cash for cutting edge chips so whatever, right? My first thought was that these deals had more to do with that than anything else.
That aspect may end up being a bit illusory in the end. But then again, Nvidia has been proven to be quite skilled at building out and defending their ecosystem, sometimes through ruthless means, so maybe it persists (and I'm not sure that's a good thing). China certainly isn't a threat to throw a wrench in this situation... the entire US geopolitical complex will ensure that is the case.
The weird part is the _impression_ that $100B is being paid to a hardware company for chips, when in fact zero dollars are being paid to a hardware company and instead they are relying on public markets to spike the stock price based on potential future orders as if the demand is real.
The only reason this works is if we are the useful idiots buying up the stock.
Stock buyback is effectively just a dividend with a different tax implication: reducing the number of shares in circulation raises the ownership stake of the remaining shares
> Stock buyback is effectively just a dividend with a different tax implication
Not just different, it specifically a lower tax rate assuming that the stockholder has held long enough to use the long term capital gains tax rate (which lower than the dividend tax rate).
Stock buyback isn't a total scam as it seems, but it does mean "we can't figure out any productive use case for this cash in advancing R&D or scaling our business anymore" which is still pretty worrying
It’s more like, “the executives with lots of shares can’t see how to make the company grow, so they’ll just use profits to pump up the share price for their gain”.
I deeply feel buybacks shouldn’t be illegal but treated shamefully.
Instead of using profits to build up long term savings or fund R&D, they basically choose to do as little as possible.
OpenAI is spending little to no money on the hardware and AMD can claim both investment expenditure and revenue. I made clear that I'm not sure the intricacies of how that or may not be tax evasion or fraud, though I dotn see how it could be neither.
https://archive.is/dvKkB
This reminds me of around 2002 when I wrote an article looking at how all the web behemoths at the time were claiming profitability through ad sales, but actually the vast majority of ads were from one web behemoth advertising on an other's site and vice versa.
Same as capacity swaps in telecom of that era
This is How Larry Elisson beat Musk for a short while although Oracle was struggling.' The deals among Oracle, Nvidia, and OpenAI have raised concerns about their circular and potentially risky nature. Oracle is reportedly spending tens of billions on Nvidia's advanced chips, Nvidia plans to invest up to $100 billion in OpenAI, and OpenAI uses Oracle's cloud infrastructure through Microsoft's Azure, creating a closed loop of financing and business. Some analysts warn this creates a reflexive loop or "dangerous bubble" where valuations may be inflated artificially by the circular flow of capital and resources, reminiscent of past booms that ended in sharp market corrections.
Is it fair to say OpenAI is in a sense “washing” the money passing between Nvidia and Oracle? And instead of taking a cut in the traditional money laundering they are enjoying massive valuation gains?
When the fed investigates this does it matter if one of the 3 companies is not a publicly traded company?
I guess you could see it like that but I don’t think it’s “wash trading” in the sense that they’re coordinating it. I don’t really know what the fed would investigate here.
> while although Oracle was struggling
In terms of actual earnings not sure Tesla is doing better.
Also a pg essay from 2010: https://www.paulgraham.com/yahoo.html
>By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"
That's not how Ponzi schemes work. Yahoo had a defacto _monopoly_ and the market had bad discovery leading to bad price information. There was no point at which the internet was /not/ worth investing in and everyone who had experience with it knew that.
The real problem seemed to be that you can only put so much money into pets.com before it becomes stupid. You had more short term investment capital than could be _effectively_ spent at the time. The long term players, as usual, avoided the Archimedian idealism, and were heavily rewarded anyways.
pg has startup brains.
pg has completely clairvoyant vision, if only about historical events
Why is it so popular to "akshually, Ponzi schemes are different!" these days?
Words have meaning in context, and calling something a "Ponzi scheme" these days means any pyramid-like system that only works as long as new investors come to the table, because that new investor money is the sole source of gains for earlier investors. But once you run out of new investors, which is inevitable, the whole thing collapses. What pg described was exactly a Ponzi scheme in that sense, even if it wasn't a deliberate scam. And that's very different from other types of business ventures that eventually fail because of the more "normal" reason that they just don't gain traction.
Do you happen to have a copy of that article? I’d love to read it.
No, but I could give you several articles that link to that article while talking about how great it is.
This incest investing is pretty telling. The whole economy is about to get burned- doubly so with DJTs tariffs and bonds not looking like the safe haven they usually are during turbulent times.
“We’re now locked into a particular version of the market and the future where all roads lead to big tech,” says Amba Kak, co-executive director of the AI Now Institute, which studies AI development and policy. Indeed, the success of major stock indexes—and perhaps your 401(k)—is resting on the continued growth of AI: Meta, Amazon, and the chipmakers Nvidia and Broadcom have accounted for 60 percent of the S&P 500’s returns this year."
All clearly designed to cash in on the speculative value being given to AI companies.
Strategically I thought OpenAI's deal of getting 10% of AMD for driving their stock price to $600 was a pretty clever way of creating $97 Billion from nothing - effectively paying for the GPUs they'd purchase.
At the same time I would've thought this insider pump and cash-in strategy would be somehow illegal, but I guess anything goes with this administration.
it'd be illegal if they bought on the public market... but they bought directly from AMD, so nothing to see here, move along. music is still playing.
This is fueled by the parabolic token usage. If token usage continues to grow parabolic, then these are the most genius deals made.
If token usage growth declines because of high prices, look at what happened to SBF.
People are bringing up the AMD deal but isn't that giving it too much credence? The deal hasn't had any material consequences yet apart from stock market fluctuations. The bigger problem for me is that AMD doesn't seem like is going to be a player of note in the AI sphere. So this deal like many other big money AI deals look like optics to me.
I don't understand why they are calling these deals circular. OpenAI is buying Nvidia and AMD chips. Oracle is also buying Nvidia chips. OpenAI is buying datacenters from Oracle, which will be powered by the chips Oracle buys from Nvidia. This is one directional: hardware makers (Nvidia and AMD) sell either to datacenter makers (Oracle), or to AI firms (like OpenAI). That's it. No circular deals.
But "circular deals" has such a nice ring to it, that you hear it everywhere nowadays. People are just hungry for negative soundbites.
I prefer https://www.bloomberg.com/news/features/2025-10-07/openai-s-... which shows the circularity in the deals.
A stronger counterpoint to the circular deals suggestion is at the end of the article, which reads
> Michael Intrator, CoreWeave’s CEO, acknowledged the circular financing worries in a recent interview with Bloomberg News, but said the public concerns will dissipate as more businesses adopt AI.
> “When Microsoft comes to us to buy infrastructure to deliver to its clients who are consuming 365 or Copilot, I don't care what the narrative is about circular financing,” Intrator said. “They have end users that are consuming it.”
It's on you to decide then if end users are actually getting value / paying for AI products.
> It's on you to decide then if end users are actually getting value / paying for AI products.
they're not
https://www.perspectives.plus/p/microsoft-365-copilot-commer...
"Brutally honest and cheerfully sarcastic insights on Microsoft’s low-code and AI technology, business apps, and the business of software - written by Jukka Niiranen"
What credibility does this guy have? Sounds like someone that has an axe to grind.
Sounds like the circle was broken with a Ponzi scheme in the middle…
“When Microsoft comes to use….” is he counting chickens before they hatch?
https://openai.com/es-419/index/openai-nvidia-systems-partne...
OpenAI => nVidia => OpenAI. That's pretty circular.
In the end with most of these deals its the shareholders paying through market cap dilution. Given the current market structure (the big companies are tech companies) there's PLENTY of capital for OpenAI to fund their expansion.
They've discovered a cheat code IMO. Instead of using and raising money themselves, use their reputation/popularity and use their suppliers market caps (e.g. NVIDIA, AMD, etc). The deal makes sense as long as the value projected to be added (i.e. via efficiency gains, loss of jobs, changing society, etc) exceeds the capital dilution for the supplier; they use their equity but the leftover equity value increase makes up for it.
Given all the passive investing, and funds invested in the top tech companies this is a VERY large pool of capital. It however increases leverage if the value doesn't materialise.
I agree with your general point: there is a tendency to group not least these deals together without distinction as confirmation of a pre-existing belief that the AI bubble is soon to collapse. The latter certainly might be true, but we should be careful about too quickly deciding what evidence supports it. I am inclined to strictly separate: (a) the NVIDIA deal as a vendor subsidizing one of their largest clients, which perhaps signals market weakness; from (b) the AMD deal as a non-market-leading vendor trying to entice a new enterprise client, who will only be able to use AMD's chips for serious training after significant (and risky) collaboration to improve their product offering.
This distinction is important to me because I see more concrete evidence for a possible material drop in NVIDIA's business short- to medium-term than a collapse of the sector as a whole. The chips act clearly shut them out unexpectedly from their second largest market and now it seems likely that Chinese chips will be competitive for training sooner than expected. Indeed, if Chinese AI firms are suddenly able to obtain even a roughly approximate product at considerably less cost, OpenAI will suddenly find themselves at a cost if not compute disadvantage to their Eastern competitors. It isn't a surprise, then, that OpenAI is now looking to reduce their present vendor lock-in with NVIDIA.
Overall, it's not great for the latter if they lose access to their second largest market, suddenly have viable competitors in their home market, and either lose some of a major client's business or have to significantly reduce pricing to retain it.
Nvidia is also investing hundreds of billions in OpenAI.
Yes. OpenAI is also investing in AMD. This was discussed yesterday on HN, following some very good explanation by Matt Levine at Bloomberg. This is a way for one party to reduce some risk, by enjoying some upside in the equity of the counterparty.
But this is not circular. Circular would be if I sell you an apple worth $0.25 for $2.00, and then you sell it back to me for $2.00, or other similar amount, and I get to mark all the apples in my inventory at $2.00 and show a huge profit (on paper). One can create variations of this blatant deal. Like I sell you some rubber for 10 times the market price, you make a balloon and then I buy the balloon for 10 times the market price. I may not have other balloons in my inventory, but plenty of rubber, and I show some nice profit. One can imagine other, fancier deals.
But in the case of AMD and NVidia, and OpenAI and Oracle, the direction is clear. OpenAI has a clear need for compute. They can buy it directly from NVidia and AMD, or indirectly from Oracle. They can buy it with hard cash (of which they don't have that much), or with their own equity, or some form of deal that offers the seller an upside in OpenAI's equity.
But there is not back and forth buying of the same item, or of rubber/balloons. All the deals seem legit. Is it possible that all the future compute will not be needed, because the AI craze will fizzle. It is, lots of things are possible. But that's general business risk.
> But this is not circular. Circular would be if I sell you an apple worth $0.25 for $2.00
When you draw a circle on a piece of paper do you put your pencil to the paper, start drawing a curve, stop and write the word FRAUD, and then complete the curve? Or do you just draw a circle?
I’m assuming that people are saying “circular” in that it looks like the money goes in a circle. (For one example) Nvidia invests in Lambda, Lambda buys GPUs from Nvidia, Nvidia leases GPUs back from Lambda, Lambda uses the revenue from leasing the GPUs to Nvidia to raise debt to buy more GPUs from Nvidia…
This is how financing works. When you buy a house, you get a mortgage from a bank. It is unusual to get a mortgage from a seller. It would feel a bit circular, right? But that is exactly what happens most of the time when people buy a car. They get a loan from the same company that sells them the car. Is that circular?
When you replace people with companies, the financing can become much more complex. The example you provided with Nvidia and Lambda seems quite reasonable to me. Here's an example that happens every day in the world of housing: banks lend money to house buyers. Then they package the mortgages and sell the resulting mortgage back securities. Then they take the money from the proceeds, and give more loans, and package them and create more mortgage back securities. Seems circular, right? But that's just how business is done. There is no Ponzi aspect to this, or fraud, or smoke and mirrors. It's just every day business. Nobody labels that as being circular.
When people buy a car they sometimes get a loan from the auto manufacturer’s financial services arm. What they don’t usually get are warrants struck at a penny for 10% of the manufacturer.
You sound like you know what you’re talking about. I only think I know what I’m talking about. Help me understand: What am I missing in the OpenAI / AMD deal that makes it non circular?
Everyday business isn’t based on hype.
The AI startup valuation largely is. I feel it quickly becomes circular because people make projections purely on other projections since the world is too impatient to wait and find out.
A single hamburger store is never going to be projected to have a billion dollars of revenue because people understand the total addressable market. Doesn’t matter how good the burger is.
The AI stuff is too new that people don’t have a firm grasp on the costs and profit opportunities. They don’t really even know how to define the TAM. Too many unknowns. Entire classes of labor could be replaced by AI —- or perhaps not.
With little grounding, it quickly becomes a circle of hype.
I don’t know what to tell you guy, but when people see money moving in a circle in a deal there is a good chance that “circular deal” might pop into their heads. Because it’s a deal that is shaped like a circle.
> Is that circular?
Doesn’t really seem so because at the end of the day the money goes from me to them. I don’t get my money back, I get a car in exchange for my money.
Also this deal didn’t begin with the manufacturer purchasing shares of me before offering me debt to buy a car from them.
>But that is exactly what happens most of the time when people buy a car.
Your car manufacturer leases your car back from you? And you use that revenue to raise debt to buy more cars from them? What manufacturer are you doing this with? What do you end up driving?
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How are these "circular deals" different than Boeing (and other heavy civilian equipment makers) providing financing on purchases? My point: Is this simply clutching pearls over the AI/LLM bubble, or is there some substance to this concern?
And another: How does it compare against the new breed of Bitcoin treasuries, like Strategy (MSTR.OQ)? As I understand, Strategy uses secondary offerings to continuously see more shares, then uses the capital to buy more Bitcoin.
There is some circular financing going on, but AI accelerationists think this will be offset by demand, value, and adoption in businesses. Hence these deals are warranted for the incoming demand.
For an interesting interpretation of the recent AMD-OpenAI deal, see Matt Levine's column from a few days ago:
> OpenAI: We would like six gigawatts worth of your chips to do inference.
> AMD: Terrific. That will be $78 billion. How would you like to pay?
> OpenAI: Well, we were thinking that we would announce the deal, and that would add $78 billion to the value of your company, which should cover it.
> AMD: …
> OpenAI: …
> AMD: No I’m pretty sure you have to pay for the chips.
> OpenAI: Why?
> AMD: I dunno, just seems wrong not to.
> OpenAI: Okay. Why don’t we pay you cash for the value of the chips, and you give us back stock, and when we announce the deal the stock will go up and we’ll get our $78 billion back.
> AMD: Yeah I guess that works though I feel like we should get some of the value?
> OpenAI: Okay you can have half. You give us stock worth like $35 billion and you keep the rest.
https://www.bloomberg.com/opinion/newsletters/2025-10-06/ope...
https://archive.is/tS5sy
Discussed yesterday:
OpenAI is good at deals - https://news.ycombinator.com/item?id=45493815 (40 comments)
Levine is fantastic on all sorts of bizarre financial dealings. Money Stuff is such a good daily read even though I don't work in a financial job
I would be convinced that he's some sort of super well calibrated financial article AI engine (due to consistency of output and breadth of coverage), except that I've been reading his column long before LLMs were on the scene.
There's no way someone would be stupid enough to part with $x worth of product and $ 0.5 x worth of stock in exchange for $x, is there? Honestly, it's stupid to even make such an offer. What prevents AMD from turning it around on them?
> AMD: Oh, since you put it like that, why don't you pay us $x for the chips and give us $ 0.5 x worth of stock? When your market cap rises by $ 0.5 x you'll get the money for those stocks. And hell, it might even rise further, giving you back some of the money for those chips. You're really robbing me blind with this deal, you'd be a fool not to take it!
>What prevents AMD from turning it around on them?
Matt's telling is a little facetious, so the exact negotiation probably didn't go like that. More importantly, OpenAI has better options. If they want to pay AMD cash for chips, they could do that without also giving up their equity. The same can't be said for AMD. They're the second choice when it comes to GPUs, and they're desperate for market share, so they're willing to cut deals like this. Without this deal OpenAI probably would have bought Nvidia chips with cash.
> NVIDIA intends to invest up to $100 billion in OpenAI progressively as each gigawatt is deployed.
AMD might do it just to try and be (stay) relevant in the market. Prior to this, discussions about AMD were slim to none, "just another inference card manufacturer". Now they're shining in the spotlight. Mission accomplished.
If you really think about it though, inference is the end goal for most AI models. So I don't see "inference only" being necessarily bad, especially if you get more bang for your buck.
Does he explain why the valuation of the company would go up by $78 billion on the public news that AMD agreed to give $78 billion of goods to OpenAI for free?
It validates that MI450 works. Jensen was saying other GPUs are so bad that companies wouldn't even take them for free and then OpenAI said no, we actually will take AMD GPUs for free. They're not that bad.
Oh this just seems like the typical financial dealings that City of London invented to obfuscating ownership of holdings half millennium ago. Some would event argue this obfuscation what transferred power from the military to bankers. And it is how we end up in this transnational corporation where the public really have no idea who is owning what and who is actually running the show here.
Now we are just transferring the power from bankers -> tech/AI.
This reminds me of the AOL Time Warner merger. "Back in the day", America Online (AOL) had a valuation large enough to pull it off:
After less than a decade, once ISP's became a thing, the AOL part of the new company shriveled into nothing and was spun off. It still exists, in name if not anything recognizable to what it once was.0 - https://en.wikipedia.org/wiki/AOL#2000%E2%80%932008:_As_AOL_...
It’s just AMD levering up on its on stock. Similar to MSTR. AMD is taking a loan against its own shares to build gpu’s hoping to rent them out via OpenAI in the future. No point in betting against it, because it can’t get margin called until OpenAI goes bankrupt. Which isn’t happening until OpenAI is worth $10 trillion first.
From the OpenAI side, it’s an amazing deal. $35B profit in one day… at a pe of 30, it’s already worth a trillion if it can repeat similar deals every year.
MSTR can't print more of what they are levering against.
Is this the proverbial writing on the wall then?
Every day a new deal involving OpenAI.
Every day one or more article wondering if/when the AI boom will transform into a bursting bubble.
Maybe people are crying wolf or misreading the situation.
My gut feeling is that yes, this is indeed a bubble and behind closed doors the CEOs are in panic mode, weirdly repeating past and well known mistakes
Anyone remember the subprime crisis?
"AI companies say these kinds of large, reciprocal, and sometimes overlapping deals are what's needed to meet growing demand for their tech. But as more and more money gets invested in the space these unorthodox business arrangements are also raising flags for industry analysts who are starting to wonder: Is the trillion-dollar AI market being propped up by the industry itself?"
From the outside: sure looks like. Can’t wait to find out if I’m right or wrong.
If memory serves, it's shit like this that sank Global Crossing: creative accounting, I think it was called at the time.
Upvote because can someone explain to someone as dense as me, whether or not this is likely to make some likely AI bubble worse? Is this just how industry allocates capital?
Part of what's concerning here is that the deals are conditional. OpenAI must meet XYZ conditions before cash/stock/etc is transferred, and the conditions are pretty hard to meet.
The money between OpenAI, Nvidia, Oracle, AMD is not circulating. There is no cashflow, only future commitments that may (and quite likely will) collapse. Yet the stock market & media react as if it's a sure thing. Even in the criticisms of these deals, the hype is affirmed.
This is the same problem as Enron's accounting, minus the fraud. (No need for fraudulent accounting when people simply don't read the fine print.)
These deals certainly make the bubble look larger because people are double-counting revenue. They also seem to be triggering extreme investor FOMO.
> They also seem to be triggering extreme investor FOMO.
Bubble's only bad if you get out at the wrong time.
>AI bubble worse?
Is it worse than the dot-com bubble? I remember everyone and their mom who knew HTML could get hired, and there were way more companies that went IPO during the dot-com bubble, like theglobe.com.
AI is a bubble, but is it worse than the dot-com bubble or the real estate bubble in 2008?
The money is allocated by institutional investors. They buy the stock, the companies trade their more valuable stocks amongst themselves for various deals. If institutional investors stop investing then the flow of deals stops & the bubble pops. There is nowhere else the institutional investors could park their money other than tech so I don't think the bubble is going to pop any time soon. But infinite growth is obviously a logical & physical impossibility so eventually there will be a correction but whoever says they know exactly when that will happen is lying & they'd be better off buying lottery tickets to cash in on their ability to predict the future.
Personally think this makes a tech bubble a contagion for other parts of the financial industry - especially if institutional investors take the "easy" trade that everyone is doing and add leverage to it.
Now once these folks don't get 800B per year in revenue and the money runs out, all of the banks go as well. But don't worry - they'll get bailed out with our money...
Circular trading is a common technique used in Ponzi schemes to create the illusion of trading activity and to attract more investors.
Yeah I spoke to my wife a few min ago about these deals and other indicators of a bubble. We’re updating our 401k’s and the old college fund brokerage account in the morning and have agreed to not make any additional changes until Jan 2027. Going to sit out a year and see what happens.
These sorts of outlooks are notoriously hard to predict.
Paul Tudor Jones (one of the most successful investors of our time) is of the mindset that if anything we are about to see equity appreciation far in excess of what we have seen for decades.
https://fortune.com/2025/10/07/paul-tudor-jones-hedge-fund-b...
If that's the case, right when you're looking to rebalance your portfolio, you're going to be looking at a much more difficult decision, having already missed out on price appreciation that would be quite useful in padding downside risk...
Perhaps just step away from market cap weighted index funds as a long term adjustment. That's something that with a proper basic framework is advisable as a general portfolio management approach as well. (I have some SMLF - Smallcap Quality/Value, Berkshire, generic Global Equity exposure, not for outright returns, but to lower exposure to the concentrated passive market cap weighted indexes and diversify risk exposures).
Trend Following exposure is a great add as well, since it is negatively correlated with risk assets in many macro/market regimes.
Probably healthier to address your very real concern with modifying the long-term portfolio design rather than take a short-term market timing approach which is more of a negative expected value.
Equities in the US are priced in dollars. If you think the dollar is going to lose value(because the government is led by people who have repeatedly told you this is their goal) then you expect stocks to rise commensurate with the devaluation of the dollar. I am not a bitcoiner or saying the USD is done for, but it seems clear that the dollar is weakened and will continue to weaken and this is a significant risk for folks like me with minimal exposure to stocks and precious metals.
If we end up with inflation rather than a market crash, this could be quite costly? Gold is up 50% this year, which hype is more correct than the other?
On the surface, the circular financing seems worrying but once you dig into it, it seems quite benign, tbh. NVIDIA is handing out GPUs into OpenAI, in return for stock/future revenue, whichever way you want to slice it. OpenAI has wonky unit economics, yes, but they're growing at ~100% YoY, so it all checks out, if you ask me.
The part that I think may have some credence is that it may be a way to prop up huge profit margins that may persist for longer than they would otherwise in lieu of further commoditization and competition.
If NVIDIA has a stake in the company, they are less likely to do something like start brewing inference chips in house with the help of the foundry partner and a provider of vanilla chip designs. The company also gets a huge cash injection that is somewhat contingent on not doing that, and hey, they have a fresh pile of cash for cutting edge chips so whatever, right? My first thought was that these deals had more to do with that than anything else.
That aspect may end up being a bit illusory in the end. But then again, Nvidia has been proven to be quite skilled at building out and defending their ecosystem, sometimes through ruthless means, so maybe it persists (and I'm not sure that's a good thing). China certainly isn't a threat to throw a wrench in this situation... the entire US geopolitical complex will ensure that is the case.
The weird part is the _impression_ that $100B is being paid to a hardware company for chips, when in fact zero dollars are being paid to a hardware company and instead they are relying on public markets to spike the stock price based on potential future orders as if the demand is real.
The only reason this works is if we are the useful idiots buying up the stock.
My brain now reads Sam's face as an "AI generated" watermark.
This and stock buybacks make me question company valuations
Stock buyback is effectively just a dividend with a different tax implication: reducing the number of shares in circulation raises the ownership stake of the remaining shares
> Stock buyback is effectively just a dividend with a different tax implication
Not just different, it specifically a lower tax rate assuming that the stockholder has held long enough to use the long term capital gains tax rate (which lower than the dividend tax rate).
[in the US]
Stock buyback isn't a total scam as it seems, but it does mean "we can't figure out any productive use case for this cash in advancing R&D or scaling our business anymore" which is still pretty worrying
It’s more like, “the executives with lots of shares can’t see how to make the company grow, so they’ll just use profits to pump up the share price for their gain”.
I deeply feel buybacks shouldn’t be illegal but treated shamefully.
Instead of using profits to build up long term savings or fund R&D, they basically choose to do as little as possible.
There is no vision.
Investments into vision can juice the stock price too. So they would do it if they had good realistic inspiring ideas
Realistically, if the execs think they can't do R&D then they can't. If they tried they would just waste the money.
Should companies never pay dividends?
I suppose stock buybacks are similar to dividends in that regard
By that logic, any profit a company distributes to shareholders is worrying.
Cyclical growth
Really? https://news.ycombinator.com/item?id=45511368
All I want to know is, should we be investing into these companies as a result of these deals? Or should we be moving out of these positions.
The OpenAI/AMD deal has an explicit AMD price target of $600. I don't see how it can be any clearer.
All I want to know is, is the bubble going to pop next week, next month, or two years from now?
Welcome to the casino! Please enjoy your stay, and remember: the house always wins ;)
It’s not a casino, I’ve been winning for years.
By asking random people on the internet what to do?
Yes, many recommended good index funds or FAANG companies.
that doesnt make you nearly as special as you think
Never heard of a winning streak at casinos?
how long until this thing pops?
my money is on 18 months
18 days
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Just enjoy it if you can’t avoid it
How about giving Nouveau some actual support so you're not screwing over everybody using Linux
They are doing that now. https://www.phoronix.com/news/NVK-Vulkan-Red-Hat-NDA-Docs
I can't legally define it yet, but I struggle to see how these deals aren't tax evasion, if not outright fraud.
That's not how taxes work. This isn't reddit, not everything is tax evasion.
OpenAI is spending little to no money on the hardware and AMD can claim both investment expenditure and revenue. I made clear that I'm not sure the intricacies of how that or may not be tax evasion or fraud, though I dotn see how it could be neither.
Would profiting from these deals make your struggle a little less difficult?