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.
He has been working in IT and business for a quarter of a century, and the last fifteen years as a MICROS~1 consultant.
https://niiranenadvisory.com/about
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.
The systemic risk is real
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 there is not back and forth buying of the same item, or of rubber/balloons. All the deals seem legit.
Some, certainly, but the vendor-financing deals certainly look circular to the casual observer. Microsoft invests $X into OpenAI for a 51% (or whatever) stake, and that investment then goes straight back to Microsoft to pay for compute credits.
Or Nvidia invests[1] $100m into OpenAI, which OpenAI then turns around and pays back to Nvidia for compute.
The majority of the deals making the news are structured like this; maybe technically those aren't actual ducks[2], but they sure look, walk and talk like ducks.
Similarly structured deals are with Oracle. And Coreweave. And everyone.
It may not be a "circular" deal, but what do you expect people to call it when a company makes a deal to receive cash (not credit, but actual cash) from a vendor, and spends that cash with that vendor?
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[1] I use this word loosely here - the investment is a commitment of 10x $10m tranches.
[2] I.e. circular deals.
> 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?
> You sound like you know what you’re talking about.
Honestly, I'm not an expert either, but I've run a company, and I can all but guarantee that credit_guy above really does not know what he is talking about.
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.
> 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.
No, they don't!
Serious "Citation Needed" here. They get a loan from a financial services company, that is a separate company from the automaker and/or dealership.
The certification and requirements for trading as a credit provider will not be met by neither the auto manufacturer nor the dealership.
> 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?
No, it doesn't! They make out new loans, sure, but they aren't loaning you specifically the proceeds from the sale of your specific mortgage-backed security!
If you happen to get a new loan from the sale of the MBS, it is impossible that only you get that loan, from the sale of an MBS that had only your existing loan.
Seriously, there's laws and regulations around this, and from what you say, with all due respect, it seems that you are unaware of these regulations.[1]
The only reason that these actually-circular deals can go on right now is because OpenAI (and other providers doing similar circular deals) are not publicly traded, and thus there are fewer regulations and even fewer enforcement of what little regulations there are for unlisted companies.
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[1] Why is your handle "credit_guy"? You don't appear to be familiar with the fact that credit providers are heavily regulated in all jurisdictions that we are talking about. I mean, you don't even need to know the specific regulations and certifications necessary, you just need to know things like a dealer cannot be a credit provider too.
It's ironic that you described how the 2008 financial crisis came to be to illustrate how “normal” this circularity is.
Loans have happened long before 2008 and have continued ever since.
This process is described in the Bible for example!
What does the Bible say about collecting interest on loans (the necessary part for making mortgage backed securities)
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?
> Your car manufacturer leases your car back from you? And you use that revenue to raise debt to buy more cars from them?
Honestly, if this was possible people would be doing it (not that they are not - fleet services and rental fleet services do some pretty funky accounting sometimes, so I wouldn't be surprised at all if this sort of thing happened).
If this was possible, I'd be doing it.
> What manufacturer are you doing this with?
Good question. The minute an answer gets posted I'm going to have a really good side-hustle.
> What do you end up driving?
I presume, at the point that this is being done, there is no actual car involved, so nobody involved will be driving because there is no car to drive.
> Good question. The minute an answer gets posted I'm going to have a really good side-hustle.
Yeah “everybody buys cars through the infinite car glitch” sounds like the sort of thing that would be part of an enormously long answer to “should I try WoW for the first time in 2025”
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