Bay Area Tech Giants Fuel AI Boom with Circular Mega-Deals
Massive investments in artificial intelligence are reshaping the tech industry, especially among Silicon Valley power players. San Francisco-based OpenAI has taken center stage, forging multibillion-dollar agreements with major chipmakers and data center operators. These deals, involving companies like Nvidia, AMD, Oracle, and CoreWeave, are raising eyebrows — not just for their size, but for their structure.
Understanding the Circular Deal Phenomenon
Some financial analysts and industry experts have begun labeling these arrangements as “circular deals”. In essence, companies are investing in each other while simultaneously selling products and services to one another. Critics worry that such reciprocal relationships may artificially inflate valuations and risk creating a financial bubble, particularly in the red-hot AI sector.
For example, Nvidia is investing billions in OpenAI, which in turn is purchasing vast quantities of Nvidia’s chips. OpenAI is also buying processors from AMD, a company in which it has acquired stock. AMD sells hardware to Oracle, which is building data centers for OpenAI. Meanwhile, CoreWeave — another OpenAI partner — is partially owned by Nvidia. This web of financial and operational connections has prompted some observers to question the sustainability of the model.
OpenAI at the Epicenter
OpenAI’s CEO, Sam Altman, has defended the strategy, emphasizing a collaborative approach. “We are in a phase of the build-out where the entire industry’s got to come together and everybody’s going to do super well,” Altman told the Wall Street Journal. According to him, cooperation across chip production, data centers, and supply chains is necessary to meet global AI demands.
Two high-profile deals have attracted particular scrutiny. In September, Nvidia announced a potential $100 billion investment in OpenAI. In return, OpenAI committed to buying enough Nvidia chips to consume 10 gigawatts of power — roughly five times the output of California’s Diablo Canyon Power Plant. This arrangement bolsters OpenAI’s capabilities while confirming Nvidia’s dominance in AI chip manufacturing.
Analysts Voice Caution
Industry analysts have expressed concerns about the self-referential nature of these transactions. In a note to clients, Bespoke Investment Group commented, “You don’t have to be a skeptic about AI technology’s promise in general to see this announcement as a troubling signal about how self-referential the entire space has become.”
Some warn that if companies like Nvidia are effectively funding their own revenue streams through such investments, the entire ecosystem could become unstable. Bloomberg cited analyst Stacy Rasgon, who acknowledged that the situation “clearly fuels ‘circular’ concerns.” Jay Goldberg added, “It’s kind of like having your parents co-sign on your first mortgage.”
Nvidia’s Response
Despite the criticism, Nvidia CEO Jensen Huang has brushed off the concerns. In response to investor Brad Gerstner’s questions on a podcast, Huang stated that OpenAI’s infrastructure funding comes from a mix of equity, revenue, and debt, not solely Nvidia’s investment. “The investment side of it is not tied to anything,” Huang said, adding, “[OpenAI] is likely going to be the next multitrillion-dollar hyperscale company, and who doesn’t want to be an investor in that?”
Another Unusual Deal: AMD and OpenAI
On the heels of the Nvidia announcement, OpenAI struck another significant deal with AMD. The chipmaker will supply 6 gigawatts of AI chips to OpenAI, and in return, OpenAI is receiving millions of AMD shares. Once again, the deal combines product delivery with financial investment — a structure that raises more questions about long-term sustainability.
Some experts believe OpenAI may not yet have the capital reserves to fulfill all its obligations, especially if demand for AI infrastructure falls short of projections. This scenario could leave a vast amount of invested money — and significant stock market valuation — on shaky ground.
Market Reaction and Industry Outlook
Despite skepticism, the market has responded positively. AMD’s stock price jumped after its OpenAI deal, just as Nvidia’s had previously. Analyst Brian Colello acknowledged the risks but noted that his firm is “not yet alarmed” by the circular nature of the deals. Meanwhile, Gil Luria offered a more cynical perspective, telling the Financial Times, “Part of Silicon Valley’s ‘fake it until you make it’ ethos is to get people to have skin in the game. Now a lot of big companies have a lot of skin in the game on OpenAI.”
As the AI arms race accelerates, these mega-deals may become more common. Whether they represent visionary collaboration or speculative excess remains to be seen, but for now, they are dramatically reshaping the landscape of the technology sector.
This article is inspired by content from Original Source. It has been rephrased for originality. Images are credited to the original source.