The companies at the heart of the AI boom are investing billions of dollars in each other, and analysts say the increasing interconnectedness increases the risk of an AI bubble.
nvidia (NVDA) In late September he said so Investing up to $100 billion in OpenAI (OPAI.PVT) as part of a partnership with maker ChatGPT to use Nvidia chips to train and run the next generation of models.
Wall Street analysts say the agreements highlight a growing trend: AI infrastructure providers, led by Nvidia, are investing in their customers, who then switch and buy more of the infrastructure providers’ products. In other cases, infrastructure customers like OpenAI invest in their suppliers.
Analysts interviewed by Yahoo Finance said there are two main concerns about the circular dynamic seen in the recent wave of AI investments. On the one hand, the transactional nature can make it seem as if there is greater demand for AI than there actually is. It also creates a closer link between the valuations of big tech companies — especially given that their stocks have risen on news of such deals — and intertwines their destinies so that a blow to any one company would be bad news for the entire ecosystem, experts said.
“The recent developments are very concerning,” said Kim Forrest, technology analyst and chief investment officer at Bouquet Capital Partners. “[AI infrastructure]vendors have made a lot of money, so they are giving money back to their customers that might otherwise be poorly spent.”
AI Ecosystem Capital Flows (Morgan Stanley Research).
Instances of financial backing between vendors and customers reduce the “resilience” of the system as a whole, said Karan Girotra, a professor at Cornell University. “If something goes wrong, the impact is across the system rather than isolated.”
Legendary short seller Jim Chanos, famous for predicting the downfall of Enron during the dot-com bust, also co-wrote Share on X Last week, “(Don’t) you think it’s a little strange that when the narrative is ‘demand for computing is infinite,’ sellers continue to subsidize buyers?”
The clearest examples of why such circular investments are risky came during the dot-com bubble of the late 1990s and early 2000s. As the Internet boomed, Internet service providers (ISPs) rushed into the market of providing networks and Internet access, but they soon found themselves strapped for cash.
In moves similar to the recent wave of AI deals, suppliers of equipment — routers, switches, fiber-optic cables, and other hardware needed to make the consumer Internet a mass product — have invested in Internet service providers and their customers by offering loans and taking stakes in those companies. ISPs can then use loans and equity financing to purchase routers or cables from equipment companies – transactions referred to as Seller financing.
On paper, business was booming, and the deals were huge. Between 1999 and 2001, equipment vendors such as Cisco Systems (cisco), Nortel, and Lucent extended networks Billions in loans For Internet service providers and telecommunications companies.
Because ISPs were heavily backed by equipment companies but had such weak underlying financials, when capital dried up, dozens of ISPs went bankrupt. With no one to repay their loans, equipment sellers were forced to write off debts.
As the industry exploded and the dot-com bubble burst, the poor investments sellers made in their customers deepened the effects of their collapse. In the period between March 2000 and the end of 2002, the highly technical Nasdaq Composite Index (^ IX) by more than 70%, a loss equivalent to more than $3 trillion, according to Bloomberg data.
Parallels are not quite the same. For example, today’s big tech companies have higher profit margins and have mostly funded their AI-related capital expenditures with strong internal cash flows rather than debt — but analysts say this could change as companies scale up. One of the leading figures in the AI boom, Oracle, It raised $18 billion in debt Late last month.
Today’s critics worry that the tangled web of AI investments makes the system too dependent on the success of OpenAI in particular. The maker of ChatGPT has yet to turn a profit, and analysts are concerned about what will happen if the company doesn’t meet its revenue forecasts.
“(OpenAI CEO Sam Altman) has the potential to crash the global economy for a decade or take us all to the promised land, and right now we don’t know what lies ahead,” Bernstein analyst Stacey Rasgon wrote in an October 6 note.
Nvidia CEO Jensen Huang at the “Winning the AI Race” artificial intelligence summit in Washington, D.C., on July 23, 2025. (Photo by Andrew Caballero-Reynolds/AFP via Getty Images) ·Andrew Caballero-Reynolds via Getty Images
Some of the recent deals are particularly concerning, because AI companies like OpenAI and CoreWeave have taken on more debt or announced intentions to do so while receiving investments from Nvidia, DA Davidson analyst Gil Loria told Yahoo Finance.
“They’re using that capital to raise debt. Going into debt is really unhealthy behavior,” he said.
Such arrangements are a sign of an unhealthy ecosystem: “If your customer has to borrow money to buy your product, your customer is not a good customer,” said Corey Johnson, chief market strategist at Epistrophy Capital Research.
Circular investments have certainly been around since the beginning of the AI market. Microsoft (MSFT) helped found OpenAI with $19 billion in investments between 2019 and the present, while Amazon (Amzn) Invested $8 billion in the field of Anthropic AI via two separate investments in 2024.
Some on Wall Street argue that such partnerships in the AI market are a good thing because they allow the capital needed to support the build-out of AI infrastructure to be deployed more quickly, potentially accelerating the path to a return on big tech companies’ massive investments.
“I would say there is no better use of Nvidia’s money right now,” Bernstein’s Rasgon said in an interview, speaking about his investments in his clients.
“I don’t think we’re anywhere close to bubble territory,” he added.
When Nvidia CEO Jensen Huang was asked on a recent podcast about claims that deals like Nvidia’s investment in OpenAI — which spends billions as a customer of Nvidia — seemed similar to the false deals of the dot-com bubble, he said that OpenAI’s revenues and any investments the AI company receives These are separate issues.
“OpenAI is likely to be the next massive multi-trillion dollar company, and who wouldn’t want to be an investor in that?” Huang said. “My only regret is that they invited us to invest early, and we were so poor that we did not invest when I should have given them all my money.”
Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laubratton.bsky.social. Email her at [email protected].
Jake Conley is a breaking news reporter covering US stocks for Yahoo Finance. Follow him on X at byjakeconley or email him at jake.co[email protected].
