AI firms’ $500B interlocking, circular investments raise bubble concerns

A growing network of circular investments among AI’s biggest companies is raising concerns about an artificial bubble, with Nvidia investing in OpenAI while OpenAI buys services from Oracle and CoreWeave—both of which purchase Nvidia chips. This interconnected web of deals, worth hundreds of billions collectively, mirrors patterns that preceded the 2000 dot-com crash and could threaten the entire industry if AI productivity gains fail to materialize.

The circular deal structure: Recent partnerships reveal how tightly interwoven the AI ecosystem has become, with companies essentially funding each other’s growth.

• Nvidia plans to invest up to $100 billion in OpenAI, which announced a new partnership with AMD, a semiconductor company that competes directly with Nvidia, to purchase chips in exchange for up to a 10% stake in AMD
• OpenAI also buys cloud computing from Oracle, a database and cloud services company, which spends about $40 billion on Nvidia chips, while Nvidia holds a stake in CoreWeave, a New Jersey-based cloud computing company that provides AI infrastructure to OpenAI
• The companies are collaborating on Stargate, a $500 billion data center project involving Oracle, OpenAI, and SoftBank, a Japanese investment firm—with Nvidia as a “core technology partner” and SoftBank owning a $3 billion Nvidia stake

Why this matters: Analysts warn these “related-party transactions” could artificially inflate company valuations and create a mirage of growth that threatens the broader economy.

• Oxford Economics researchers noted that “the scale of recent investment increases by tech firms already indicates that they are taking significant risks”
• If AI productivity gains prove “limited or delayed,” they predict “a sharp correction in tech stocks, with negative knock-ons for the real economy, would be very likely”
• Gil Luria of D.A. Davidson, a financial services firm, warned that if investors decide the ties among AI giants are “getting too close,” there will be “some deflating activity”—Wall Street speak for a bubble bursting

The dot-com parallel: Investment advisers see troubling similarities to the partnerships announced before the 2000 tech crash.

• The tech-heavy Nasdaq fell 77% in March 2000, wiping out billions in market value
• It took 15 years for the Nasdaq to return to its March 2000 highs
• The current AI boom is 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”

The stakes involved: More than 35% of the S&P 500’s market value—over $20 trillion—now comes from just seven tech companies heavily involved in AI projects.

• The “Magnificent 7” includes Apple, Alphabet (Google’s parent company), Amazon, Meta (Facebook’s parent company), Microsoft, Nvidia, and Tesla
• Nvidia alone has reached a $4.5 trillion market valuation
• These companies must now “generate huge revenues and profits to pay for all the obligations they are signing up for and at the same time provide a return to its investors,” according to Peter Boockvar of OnePoint BFG Wealth Partners, an investment advisory firm

What they’re saying: OpenAI CEO Sam Altman acknowledges the cyclical nature of tech investment while defending the current boom.

• “Between the ten years we’ve already been operating and the many decades ahead of us, there will be booms and busts,” Altman said during a tour of OpenAI’s Texas data center
• “People will over-invest and lose money, and underinvest and lose a lot of revenue”
• Nvidia CEO Jensen Huang characterized his company’s OpenAI investment as an opportunity to invest in the next “multitrillion-dollar” company