Nvidia plans to invest in OpenAI, which is buying cloud computing from Oracle, which is buying chips from Nvidia, which has a stake in CoreWeave, which is providing artificial intelligence infrastructure to OpenAI.
The AI boom that is revolutionizing how people live and work has become increasingly fueled by just a handful of companies turning to one another for the vast amounts of capital and computing power needed to drive their breakneck growth.
Some of those partnerships are worth up to hundreds of billions of dollars. Taken together, they have enormously increased the companies’ values, helping send U.S. stock indexes to new highs.
But as AI investing grows more insular, there is also a risk that the money flowing between these companies is creating a mirage of growth.
If the trend accelerates, some analysts warn, a weak link could threaten the viability of the whole industry — leaving an outsized mark on the U.S. economy.
“The experience of a quarter of a century ago [when the dot-com bubble burst] won’t necessarily be repeated, but the scale of recent investment increases by tech firms already indicates that they are taking significant risks,” analysts with Oxford Economics research group wrote in a recent note.
If it starts to become clear that AI productivity gains — and thus the return on investment — may be limited or delayed, “a sharp correction in tech stocks, with negative knock-ons for the real economy, would be very likely,” they wrote.
A web of deals
The latest example of that network of investments came Monday, when OpenAI — the maker of ChatGPT — announced a deal with artificial intelligence chipmaker Advanced Micro Devices, or AMD.
Under the terms of the OpenAI-AMD partnership, OpenAI will purchase AMD’s chips for an undisclosed sum in exchange for the right to take a stake of as much as 10% in the semiconductor giant.
The announcement came just weeks after Nvidia unveiled a deal under which it pledged to invest up to $100 billion in OpenAI.
“Excited to partner with AMD to use their chips to serve our users!” OpenAI CEO Sam Altman wrote on X. AMD and Nvidia are direct competitors.
An Nvidia spokesperson did not immediately respond to an inquiry about whether any OpenAI funds would be used to finance buying its competitor’s chips.
Nvidia CEO Jensen Huang has characterized his company’s $100 billion OpenAI investment as an opportunity to invest in the next “multitrillion-dollar” company.
Nvidia itself is part of that club, with a market valuation of $4.5 trillion.
Investments like Nvidia’s in OpenAI are predicated on “the confidence in the revenues” a company can sustain, Huang said on the “BG2” technology podcast.
Nvidia and OpenAI already have an indirect collaboration, through the cloud-computing darling CoreWeave, based in New Jersey, which has a standing agreement with OpenAI to sell Nvidia systems to OpenAI.
One of CoreWeave’s biggest investors? Nvidia.
There are other players in the thicket. Oracle has said it will spend about $40 billion on Nvidia’s chips to power one of OpenAI’s data centers.
Oracle and OpenAI are also collaborating with Japan’s SoftBank group on plans to spend $500 billion on additional data centers in a project known as Stargate.
Nvidia is a “core technology partner” to the Stargate deal. SoftBank owns a $3 billion stake in Nvidia.
An OpenAI representative referred NBC News to CFO Sarah Friar’s recent comments to CNBC, in which she discussed the company’s need for additional computing power. But she did not directly address the “circular” question.
Nvidia and CoreWeave declined to comment. Representatives for Oracle and SoftBank did not respond to requests for comment.
The doomsday scenario
To some investment advisers, the Nvidia-OpenAI deal is especially reminiscent of the ones announced in the lead-up to the 2000 dot-com bubble burst.
In March of that year, the tech-heavy Nasdaq Composite stock index fell by 77% and wiped out billions of dollars in market value.
It would take 15 more years before the Nasdaq returned to its March 2000 highs.
“There’s a healthy part and an unhealthy part” to the AI ecosystem, said Gil Luria, a managing director at D.A. Davidson financial group who covers technology.
The unhealthy part has become marked by “related-party transactions” like the ones involving these companies, he said, which can artificially prop up the value of the firms involved.
If investors decide the ties among the AI giants are getting too close, he said, “there will be some deflating activity.” That’s Wall Street-speak for a bubble’s bursting.
Altman recently sought to calm fears of a looming AI bust, suggesting that it was part of the life cycle of every industry.
“Between the ten years we’ve already been operating and the many decades ahead of us, there will be booms and busts,” Altman said last month during a tour of the massive data center complex that OpenAI is building in Abilene, Texas.
“People will over-invest and lose money, and underinvest and lose a lot of revenue,
Big AI’s reliance on circular deals is raising fears of a bubble
