Nvidia's Circular Investments Fuel AI Bubble Concerns

Nvidia's strategy involves investing in or lending money to customers like OpenAI and Coreweave, which then purchase Nvidia GPUs or services. This vendor financing, while common, is raising concerns due to its scale and complexity, with interlocking rings of investments making true demand difficult to ascertain.

For instance, Nvidia previously participated in a $6.6 billion OpenAI investment round in October 2024 and owns 7% of Coreweave, a stake valued at $3 billion as of the end of June. These investments enable companies such as OpenAI and Coreweave to secure debt financing at significantly lower interest rates, with Jay Goldberg of Seaport Global Securities comparing it to a co-signer on a mortgage.

Nvidia also signed a $6.3 billion deal to purchase any cloud capacity CoreWeave cannot sell to others, having previously agreed to spend $1.3 billion over four years on cloud computing with CoreWeave. Coreweave has purchased at least 250,000 Nvidia H100 Hopper GPUs, costing about $30,000 each, totaling approximately $7.5 billion in purchases from Nvidia.

NewStreet Research estimates that for every $10 billion Nvidia invests in OpenAI, it will see $35 billion worth of GPU purchases or lease payments, an amount equal to about 27% of its annual revenues last fiscal year. Analysts like Goldberg and Stacy Rasgon of Bernstein Research highlight these circular deals as emblematic of "bubble-like behavior," drawing parallels to the dot-com era's telecom equipment makers such as Nortel, Lucent, and Cisco, which extended significant customer financing before the bubble burst in 2001, leading to widespread bankruptcies and substantial losses.