12 ms·

OpenAI, Nvidia fuel $1T AI market with web of circular deals

• bozhark 1y ago
  Cyclical growth
  • mgh2 1y ago
    Really? https://news.ycombinator.com/item?id=45511368 https://news.ycombinator.com/item?id=45511368
• mgh2 1y ago
  https://archive.is/dvKkB https://archive.is/dvKkB
• 1vuio0pswjnm7 1y ago
  "AI companies say these kinds of large, reciprocal, and sometimes overlapping deals are what's needed to meet growing demand for their tech. But as more and more money gets invested in the space these unorthodox business arrangements are also raising flags for industry analysts who are starting to wonder: Is the trillion-dollar AI market being propped up by the industry itself?"
  • nkrisc 1y ago
    From the outside: sure looks like. Can’t wait to find out if I’m right or wrong.
    • rhetocj23 1y ago
      I think certain people are far too deep into it that there’s no rationale behind what is going on now. It’s all about ‘accelerating’ forward at all costs.
• 1vuio0pswjnm7 1y ago
  [dead]
• ra0x3 1y ago
  Upvote because can someone explain to someone as dense as me, whether or not this is likely to make some likely AI bubble worse? Is this just how industry allocates capital?
  • measurablefunc 1y ago
    The money is allocated by institutional investors. They buy the stock, the companies trade their more valuable stocks amongst themselves for various deals. If institutional investors stop investing then the flow of deals stops & the bubble pops. There is nowhere else the institutional investors could park their money other than tech so I don't think the bubble is going to pop any time soon. But infinite growth is obviously a logical & physical impossibility so eventually there will be a correction but whoever says they know exactly when that will happen is lying & they'd be better off buying lottery tickets to cash in on their ability to predict the future.
  • wmf 1y ago
    These deals certainly make the bubble look larger because people are double-counting revenue. They also seem to be triggering extreme investor FOMO.
    • petesergeant 1y ago
      > They also seem to be triggering extreme investor FOMO. Bubble's only bad if you get out at the wrong time.
      • itsn0tm3 1y ago
        Only for you as an individual, from an economic and societal perspective a bursting bubble is never good!
        • christophilus 1y ago
          It’s not the bursting that is bad. It’s the bubble that is bad. The bursting is unpleasant, but good.
• mikeinseattle 1y ago
  [dead]
• nextworddev 1y ago
  Just enjoy it if you can’t avoid it
• barbarr 1y ago
  This and stock buybacks make me question company valuations
  • ctkhn 1y ago
    Stock buyback isn't a total scam as it seems, but it does mean "we can't figure out any productive use case for this cash in advancing R&D or scaling our business anymore" which is still pretty worrying
    • yen223 1y ago
      I suppose stock buybacks are similar to dividends in that regard
    • petesergeant 1y ago
      By that logic, any profit a company distributes to shareholders is worrying.
    • BobbyTables2 1y ago
      It’s more like, “the executives with lots of shares can’t see how to make the company grow, so they’ll just use profits to pump up the share price for their gain”. I deeply feel buybacks shouldn’t be illegal but treated shamefully. Instead of using profits to build up long term savings or fund R&D, they basically choose to do as little as possible. There is no vision.
      • aoeusnth1 1y ago
        Should companies never pay dividends?
      • wmf 1y ago
        Realistically, if the execs think they can't do R&D then they can't. If they tried they would just waste the money.
      • ljlolel 1y ago
        Investments into vision can juice the stock price too. So they would do it if they had good realistic inspiring ideas
• Angostura 1y ago
  This reminds me of around 2002 when I wrote an article looking at how all the web behemoths at the time were claiming profitability through ad sales, but actually the vast majority of ads were from one web behemoth advertising on an other's site and vice versa.
  • slaterbug 1y ago
    Do you happen to have a copy of that article? I’d love to read it.
    • o1bf2k25n8g5 1y ago
      No, but I could give you several articles that link to that article while talking about how great it is.
  • qaq 1y ago
    Same as capacity swaps in telecom of that era
    • Sam6late 1y ago
      This is How Larry Elisson beat Musk for a short while although Oracle was struggling.' The deals among Oracle, Nvidia, and OpenAI have raised concerns about their circular and potentially risky nature. Oracle is reportedly spending tens of billions on Nvidia's advanced chips, Nvidia plans to invest up to $100 billion in OpenAI, and OpenAI uses Oracle's cloud infrastructure through Microsoft's Azure, creating a closed loop of financing and business. Some analysts warn this creates a reflexive loop or "dangerous bubble" where valuations may be inflated artificially by the circular flow of capital and resources, reminiscent of past booms that ended in sharp market corrections.
      • deleted 1y ago
        [deleted]
      • heywoods 1y ago
        Is it fair to say OpenAI is in a sense “washing” the money passing between Nvidia and Oracle? And instead of taking a cut in the traditional money laundering they are enjoying massive valuation gains? When the fed investigates this does it matter if one of the 3 companies is not a publicly traded company?
• gruez 1y ago
  For an interesting interpretation of the recent AMD-OpenAI deal, see Matt Levine's column from a few days ago: > OpenAI: We would like six gigawatts worth of your chips to do inference. > AMD: Terrific. That will be $78 billion. How would you like to pay? > OpenAI: Well, we were thinking that we would announce the deal, and that would add $78 billion to the value of your company, which should cover it. > AMD: … > OpenAI: … > AMD: No I’m pretty sure you have to pay for the chips. > OpenAI: Why? > AMD: I dunno, just seems wrong not to. > OpenAI: Okay. Why don’t we pay you cash for the value of the chips, and you give us back stock, and when we announce the deal the stock will go up and we’ll get our $78 billion back. > AMD: Yeah I guess that works though I feel like we should get some of the value? > OpenAI: Okay you can have half. You give us stock worth like $35 billion and you keep the rest. https://www.bloomberg.com/opinion/newsletters/2025-10-06/openai-is-good-at-deals https://www.bloomberg.com/opinion/newsletters/2025-10-06/ope... https://archive.is/tS5sy https://archive.is/tS5sy
  • ctkhn 1y ago
    Levine is fantastic on all sorts of bizarre financial dealings. Money Stuff is such a good daily read even though I don't work in a financial job
    • Fade_Dance 1y ago
      I would be convinced that he's some sort of super well calibrated financial article AI engine (due to consistency of output and breadth of coverage), except that I've been reading his column long before LLMs were on the scene.
  • fluoridation 1y ago
    There's no way someone would be stupid enough to part with $x worth of product and $ 0.5 x worth of stock in exchange for $x, is there? Honestly, it's stupid to even make such an offer. What prevents AMD from turning it around on them? > AMD: Oh, since you put it like that, why don't you pay us $x for the chips and give us $ 0.5 x worth of stock? When your market cap rises by $ 0.5 x you'll get the money for those stocks. And hell, it might even rise further, giving you back some of the money for those chips. You're really robbing me blind with this deal, you'd be a fool not to take it!
• credit_guy 1y ago
  I don't understand why they are calling these deals circular. OpenAI is buying Nvidia and AMD chips. Oracle is also buying Nvidia chips. OpenAI is buying datacenters from Oracle, which will be powered by the chips Oracle buys from Nvidia. This is one directional: hardware makers (Nvidia and AMD) sell either to datacenter makers (Oracle), or to AI firms (like OpenAI). That's it. No circular deals. But "circular deals" has such a nice ring to it, that you hear it everywhere nowadays. People are just hungry for negative soundbites.
  • mrbungie 1y ago
    https://openai.com/es-419/index/openai-nvidia-systems-partnership/ https://openai.com/es-419/index/openai-nvidia-systems-partne... OpenAI => nVidia => OpenAI. That's pretty circular.
  • schumpeter 1y ago
    Nvidia is also investing hundreds of billions in OpenAI.
    • credit_guy 1y ago
      Yes. OpenAI is also investing in AMD. This was discussed yesterday on HN, following some very good explanation by Matt Levine at Bloomberg. This is a way for one party to reduce some risk, by enjoying some upside in the equity of the counterparty. But this is not circular. Circular would be if I sell you an apple worth $0.25 for $2.00, and then you sell it back to me for $2.00, or other similar amount, and I get to mark all the apples in my inventory at $2.00 and show a huge profit (on paper). One can create variations of this blatant deal. Like I sell you some rubber for 10 times the market price, you make a balloon and then I buy the balloon for 10 times the market price. I may not have other balloons in my inventory, but plenty of rubber, and I show some nice profit. One can imagine other, fancier deals. But in the case of AMD and NVidia, and OpenAI and Oracle, the direction is clear. OpenAI has a clear need for compute. They can buy it directly from NVidia and AMD, or indirectly from Oracle. They can buy it with hard cash (of which they don't have that much), or with their own equity, or some form of deal that offers the seller an upside in OpenAI's equity. But there is not back and forth buying of the same item, or of rubber/balloons. All the deals seem legit. Is it possible that all the future compute will not be needed, because the AI craze will fizzle. It is, lots of things are possible. But that's general business risk.
• ath3nd 1y ago
  [dead]
• chasd00 1y ago
  Yeah I spoke to my wife a few min ago about these deals and other indicators of a bubble. We’re updating our 401k’s and the old college fund brokerage account in the morning and have agreed to not make any additional changes until Jan 2027. Going to sit out a year and see what happens.
  • repeekad 1y ago
    If we end up with inflation rather than a market crash, this could be quite costly? Gold is up 50% this year, which hype is more correct than the other?
    • anon291 1y ago
      Gold is up because the dollar is down. Like guys... Gold is always worth the same. It's the other currencies that change in exchange rate with gold.
  • Fade_Dance 1y ago
    These sorts of outlooks are notoriously hard to predict. Paul Tudor Jones (one of the most successful investors of our time) is of the mindset that if anything we are about to see equity appreciation far in excess of what we have seen for decades. https://fortune.com/2025/10/07/paul-tudor-jones-hedge-fund-billionaire-markets-more-explosive-than-1999/ https://fortune.com/2025/10/07/paul-tudor-jones-hedge-fund-b... If that's the case, right when you're looking to rebalance your portfolio, you're going to be looking at a much more difficult decision, having already missed out on price appreciation that would be quite useful in padding downside risk... Perhaps just step away from market cap weighted index funds as a long term adjustment. That's something that with a proper basic framework is advisable as a general portfolio management approach as well. (I have some SMLF - Smallcap Quality/Value, Berkshire, generic Global Equity exposure, not for outright returns, but to lower exposure to the concentrated passive market cap weighted indexes and diversify risk exposures). Trend Following exposure is a great add as well, since it is negatively correlated with risk assets in many macro/market regimes. Probably healthier to address your very real concern with modifying the long-term portfolio design rather than take a short-term market timing approach which is more of a negative expected value.
• deadbabe 1y ago
  All I want to know is, should we be investing into these companies as a result of these deals? Or should we be moving out of these positions.
  • turtletontine 1y ago
    All I want to know is, is the bubble going to pop next week, next month, or two years from now? Welcome to the casino! Please enjoy your stay, and remember: the house always wins ;)
    • deadbabe 1y ago
      It’s not a casino, I’ve been winning for years.
      • topranks 1y ago
        By asking random people on the internet what to do?
        • deadbabe 1y ago
          Yes, many recommended good index funds or FAANG companies.
          • YuukiRey 1y ago
            Keep in mind that it’s easy to win in a market that’s just going up. You could pick random stocks and you’d probably get decent returns. The last decade has been pretty spectacular for stocks but that doesn’t most of us wizards at investing.
            • deadbabe 1y ago
              The thing is if you’re well diversified, then when you win, you win big, but when you lose, you lose small. My worst losses have left me with maybe 0.5x-0.25x of my inital investment. But my big wins have been 10x+. Even if you leveraged hard, brokers would close out your positions before you go negative.
• _heimdall 1y ago
  I can't legally define it yet, but I struggle to see how these deals aren't tax evasion, if not outright fraud.
  • driverdan 1y ago
    That's not how taxes work. This isn't reddit, not everything is tax evasion.
    • _heimdall 1y ago
      OpenAI is spending little to no money on the hardware and AMD can claim both investment expenditure and revenue. I made clear that I'm not sure the intricacies of how that or may not be tax evasion or fraud, though I dotn see how it could be neither.
  • fijiaarone 1y ago
    Would profiting from these deals make your struggle a little less difficult?
• alex1138 1y ago
  How about giving Nouveau some actual support so you're not screwing over everybody using Linux
  • wmf 1y ago
    They are doing that now. https://www.phoronix.com/news/NVK-Vulkan-Red-Hat-NDA-Docs https://www.phoronix.com/news/NVK-Vulkan-Red-Hat-NDA-Docs
• deleted 1y ago
  [deleted]
• churchill 1y ago
  On the surface, the circular financing seems worrying but once you dig into it, it seems quite benign, tbh. NVIDIA is handing out GPUs into OpenAI, in return for stock/future revenue, whichever way you want to slice it. OpenAI has wonky unit economics, yes, but they're growing at ~100% YoY, so it all checks out, if you ask me.
  • Fade_Dance 1y ago
    The part that I think may have some credence is that it may be a way to prop up huge profit margins that may persist for longer than they would otherwise in lieu of further commoditization and competition. If NVIDIA has a stake in the company, they are less likely to do something like start brewing inference chips in house with the help of the foundry partner and a provider of vanilla chip designs. The company also gets a huge cash injection that is somewhat contingent on not doing that, and hey, they have a fresh pile of cash for cutting edge chips so whatever, right? My first thought was that these deals had more to do with that than anything else. That aspect may end up being a bit illusory in the end. But then again, Nvidia has been proven to be quite skilled at building out and defending their ecosystem, sometimes through ruthless means, so maybe it persists (and I'm not sure that's a good thing). China certainly isn't a threat to throw a wrench in this situation... the entire US geopolitical complex will ensure that is the case.
  • sailfast 1y ago
    The weird part is the _impression_ that $100B is being paid to a hardware company for chips, when in fact zero dollars are being paid to a hardware company and instead they are relying on public markets to spike the stock price based on potential future orders as if the demand is real. The only reason this works is if we are the useful idiots buying up the stock.
  • fedeb95 1y ago
    yes but their growth isn't driven by actual profits. It's a bet.
  • lucianbr 1y ago
    > wonky unit economics, yes, but they're growing at ~100% YoY Isn't this "losing money on each sale but making it up in volume"? Sounds like I heard that before and it did not turn out well.
• stephc_int13 1y ago
  Every day a new deal involving OpenAI. Every day one or more article wondering if/when the AI boom will transform into a bursting bubble. Maybe people are crying wolf or misreading the situation. My gut feeling is that yes, this is indeed a bubble and behind closed doors the CEOs are in panic mode, weirdly repeating past and well known mistakes
  • skatingaway 1y ago
    It just we’ve seen the same thing for over four decades. I was getting stock certificates mailed to me from IBM in the 1980s when the savings and loan scandal rocked the market in 87. Then Enron. Then the internet bubble. Then the subprime meltdown. It just happens every decade or so when “too good to be true” runups happen.
  • tim333 1y ago
    I think you could classify the recent deals as bubble inflating. We are probably a way off from it bursting.
• deleted 1y ago
  [deleted]
• usrxcghghj 1y ago
  how long until this thing pops? my money is on 18 months
  • cluckindan 1y ago
    18 days
    • lelanthran 1y ago
      I sense a business opportunity here: betting on stocks! Maybe we can have a central market where people can exchange their money for bets. Maybe even sell their bet off before the due date. We can call it a "stock market", or maybe even a "stock exchange". I expect I'll be able to get a patent on it if I prefix the name with "online", or suffix it with "on the internet".
      • cluckindan 1y ago
        Even better, form pairs of stocks and make them fight! Bet on the outcome using any liquid electronic currency, such as CS skins!
• trash_cat 1y ago
  There is some circular financing going on, but AI accelerationists think this will be offset by demand, value, and adoption in businesses. Hence these deals are warranted for the incoming demand.
  • tim333 1y ago
    I think I saw Altman saying there's a global shortage of compute just now so this may address it. I'm not sure how much is actual user demand though and how much just investors wanting to pile into AI startups.
• ItsBob 1y ago
  If memory serves, it's shit like this that sank Global Crossing: creative accounting, I think it was called at the time.
• feverzsj 1y ago
  Circular trading is a common technique used in Ponzi schemes to create the illusion of trading activity and to attract more investors.
• aktuel 1y ago
  My brain now reads Sam's face as an "AI generated" watermark.
• bluSCALE4 1y ago
  Is this the proverbial writing on the wall then?
• ksynwa 1y ago
  People are bringing up the AMD deal but isn't that giving it too much credence? The deal hasn't had any material consequences yet apart from stock market fluctuations. The bigger problem for me is that AMD doesn't seem like is going to be a player of note in the AI sphere. So this deal like many other big money AI deals look like optics to me.
  • NitpickLawyer 1y ago
    > AMD doesn't seem like is going to be a player of note in the AI sphere. I thought AMD is well positioned in the inference space? They have high VRAM, somewhat high connectivity, already shipping pods that are pretty ok for inference? Training is still dominated by nvda and their CUDA moat, but there's an increased need for scalable inference, and that should fit AMD well. Am I wrong in thinking that?
    • ksynwa 1y ago
      That's what I have read as well but the ocean's distance between Nvidia and AMD in terms of market share of AI chips does not reflect that.
• throw-10-8 1y ago
  Anyone remember the subprime crisis?
  • senectus1 1y ago
    this is going to be bigger, mostly because the leadership vaccume in the US Gov is all too happy for it to get very big before it goes bang.
  • altacc 1y ago
    The other day I was helping somebody choose some funds to invest in. The majority of "global" or "index" funds we looked into either directly or indirectly had the largest share of holdings in Nvidia, Microsoft, Meta, Alphabet, AMD. Often these were about 50-70% of their portfolio. The returns for the past year look great but the crash is going to be devastating and widespread because so many investments link back to this bubble.
    • throw-10-8 1y ago
      I completely withdrew from the US market last Nov 5th. It's plainly obvious where all of this is going.
      • OhioMan2943 1y ago
        Where did you put your funds? bonds are screwed but I'm thinking gold
        • Pingk 1y ago
          There are plenty of non-US index funds, like EU, UK, Japan and others. There are also indices that track smaller companies rather than just the S&P500 or Nasdaq. Or diversify in both directions - small US, and big and small international funds.
      • skatingaway 1y ago
        There are other companies than the magnificent 7. Other boring companies with boring dividends and solid earnings that have nothing to do with tech. Ulta. Pepsi. Chevron. But you sound pretty smart so I’m sure you had a good reason to invest in non us markets.
• mythz 1y ago
  All clearly designed to cash in on the speculative value being given to AI companies. Strategically I thought OpenAI's deal of getting 10% of AMD for driving their stock price to $600 was a pretty clever way of creating $97 Billion from nothing - effectively paying for the GPUs they'd purchase. At the same time I would've thought this insider pump and cash-in strategy would be somehow illegal, but I guess anything goes with this administration.
  • deleted 1y ago
    [deleted]
  • baq 1y ago
    it'd be illegal if they bought on the public market... but they bought directly from AMD, so nothing to see here, move along. music is still playing.
  • christophilus 1y ago
    These sorts of shenanigans happen under whatever administration happens to be in office at the end of a long business cycle and near the frothy peak of a hype cycle. And that frothy peak can be quite tall and last for years.
  • tim333 1y ago
    Just getting options and trying to get the company to do well isn't illegal or discouraged. Price manipulation can be illegal but I don't see any evidence of that so far.
• returnInfinity 1y ago
  This is fueled by the parabolic token usage. If token usage continues to grow parabolic, then these are the most genius deals made. If token usage declines because of high prices, look at what happened to SBF.
  • Ianjit 1y ago
    I notice that when I ask ChatGPT a question the answers I get back seem more verbose than they were a year ago. Where a 1-2 line response would be sufficient GPT delivers a sprawling essay. Overall the value of the answer has probably gone down, but tokens are up.
    • noosphr 1y ago
      You can quite easily ask it to summarize the result in a sentence or paragraph. LLMs have no other way to compute than write text and the more text they write the more compute they do. You only care about the final output.
      • Ianjit 1y ago
        I do. It typically goes on to write a preamble about why it gave a long answer before finally providing a summary. Token stuffing.
        • noosphr 1y ago
          This is akin to complaining about the overhead of radix conversion between decimal and binary in early computers. Unless you figure out how to talk in latent space directly to an llm the preamble is the cost you pay for getting the answer back in English.
    • bmacho 1y ago
      I've just set my (free) ChatGPT to "Robot" in style options, so far I like its style and level of detailedness
  • re-thc 1y ago
• throwaway2037 1y ago
  How are these "circular deals" different than Boeing (and other heavy civilian equipment makers) providing financing on purchases? My point: Is this simply clutching pearls over the AI/LLM bubble, or is there some substance to this concern? And another: How does it compare against the new breed of Bitcoin treasuries, like Strategy (MSTR.OQ)? As I understand, Strategy uses secondary offerings to continuously see more shares, then uses the capital to buy more Bitcoin.
  • f1shy 1y ago
    This happens also with automotive companies. Peugeot has its own bank, which lends money to people buying peugeots. The big difference: is not circular. The bank is a bank, the OEM building cars build cars. The bank makes money by lending and cashing interest. The car maker by selling for profit. The money goes from bank to OEM, and not the way around, no circle. I do not know the specifics of Boeing though.
    • dh2022 1y ago
      Boeing uses Export / Import bank to finance some of its sales: https://www.exim.gov/news/export-import-bank-united-states-board-directors-approves-nearly-297-million-transaction https://www.exim.gov/news/export-import-bank-united-states-b... https://www.reuters.com/business/aerospace-defense/us-export-import-bank-says-board-backs-811-mln-loan-guarantee-aid-boeing-sale-2022-06-17/ https://www.reuters.com/business/aerospace-defense/us-export... https://www.cato.org/regulation/fall-2015/us-export-import-bank-boeing-value-friends-high-places https://www.cato.org/regulation/fall-2015/us-export-import-b...
  • lucianbr 1y ago
    Didn't Boeing's deals turn out to be bad?
• OhioMan2943 1y ago
  This incest investing is pretty telling. The whole economy is about to get burned- doubly so with DJTs tariffs and bonds not looking like the safe haven they usually are during turbulent times. “We’re now locked into a particular version of the market and the future where all roads lead to big tech,” says Amba Kak, co-executive director of the AI Now Institute, which studies AI development and policy. Indeed, the success of major stock indexes—and perhaps your 401(k)—is resting on the continued growth of AI: Meta, Amazon, and the chipmakers Nvidia and Broadcom have accounted for 60 percent of the S&P 500’s returns this year."
• thesmtsolver 1y ago
  What is the economy if not a bunch of much larger overlapping circles of different sizes?
  • emoII 1y ago
    And I guess the smaller the cluster, the larger the bubble?
    • deleted 1y ago
      [deleted]
• gsky 1y ago
  HN community predictions so far are 2000s: cloud bubble 2010s: crypto bubble 2020s: AI bubble Seems modern economy works different. I missed cloud and crypto and dont wana miss AI so im investing about 20% of my income.
  • mattfca 1y ago
    thats sort of what you get when you take a bunch of developers opinions as facts on an ever changing global economy. a lot of comments dont really understand finance; and are just repeating gut feelings they align with
• xpuente 1y ago
  This is going to end badly — and soon. It’s ironic that catastrophic forgetting (i.e., the inability to perform continuous learning) and hallucinations (i.e., the failure to recognize when a prediction is unfounded) won’t be the causes of the crash, but rather greed and stupidity.
  • rco8786 1y ago
    Has greed and stupidity ever not been the underlying cause of a financial bubble?
    • captainkrtek 1y ago
      The 08 financial crisis and mortgage backed CDOs?
• seydor 1y ago
  clearly openAI is the top dog here who can hoover all the money , but it's not a public company
  • rasz 1y ago
    So far OpenAI hoovered - (minus) $7 Billion in first quarter 2025. $11.2 billion OPEX (compute, sales/marketing) in exchange for $4.3bn revenue. I wonder if revenue sharing agreement with Microsoft means Microsoft gets to pay for half of that :-)
    • tim333 1y ago
      I do wonder a bit about those finances. Losing $7bn on 4bn revenue so let's invest another $1000bn capex in this wonderful business.
• thiago_fm 1y ago
  The MI450 is the pets.com from the 90s of AI hardware. It's bad. The bubble now isn't even about LLMs, but has affected the entire stack. Even hardware companies are offering rubbish for the sake of prop'ing up their own valuation. CUDA had decades of improvements, we may have AGI (tm) earlier than what it will take AMD to fix their broken software. MI450 doesn't work well at all, OpenAI would rather take the deal and overspend in a project to try to use it for their software stack, which is incompatible with it. Just for the sake of proping up valuations, with no "market competitiveness" guidance. Just for moving money. Funnily enough, Google is ahead of all of this, as they can make their on TPUs and have their integrated stack. They don't need to generate fake economic activityu.
• emsign 1y ago
  Why does "Web of circular deals" sounds like a scam?
  • thenaturalist 1y ago
    Because it is.
• londons_explore 1y ago
  A 0.1% tax on all money transfers (or any other transfers of value from entity A to entity B) would end this...
  • dh2022 1y ago
    There are sales taxes on each sale (GPU sales / Cloud VMs sales / etc...) Meta point: governments want to tax each money transfer - when people are paid, when selling a real estate property, when selling stocks, when selling goods and services. Every time money changes hands governments want to take a piece. This is the easiest way for me to understand taxation in pretty much any jurisdiction.
• IshKebab 1y ago
  > remains largely unproven as an avenue for profit-making That seems like a bit of a stretch. How much money is OpenAI making?
  • DonsDiscountGas 1y ago
    Pretty sure they're losing money on the products that they actually sell. All the cash they have is coming from investors (ie hype).
• stared 1y ago
  There is a beautiful scene from "The Wolf of Wall Street", in which Matthew McConaughey outshines Leonardo DiCaprio. https://www.youtube.com/watch?v=Y4iBdIq0aaY https://www.youtube.com/watch?v=Y4iBdIq0aaY I think it serves as a good commentary.
  • fransje26 1y ago
    And plop! goes the bubble.
  • ubermonkey 1y ago
    I finally got around to watching that a year or two ago. That scene is among several that are just remarkable bits of work, but somehow the whole film itself felt like a slog. I feel like that's the problem generally with late career Scorsese. The last of his films that felt consistently interesting and free of flab was, to me, Casino, though he got close for me with The Aviator and The Departed.
    • HelloMcFly 1y ago
      Agreed on TWoWS. Kind of loved every scene in the movie, but actually strongly dislike the movie in full. I also think that despite what seems like an attempt to critique the destructive lifestyle, it does the opposite and glorifies it. Mostly not a fan of his later career work, but I do really like Killers of the Flower Moon and Shutter Island.
      • ubermonkey 1y ago
        I'll be honest and say I never saw Shutter Island in part because I read the book (at one point I was a Lehane fan) and saw the twist coming miles and miles away. I haven't seen KOTFM b/c it's past my Scorsese Endpoint. ;)
    • snapcaster 1y ago
      Yeah he loves hiding a 10/10 90 minute movie inside a 3 hour+ slog
  • 1y ago
• cs702 1y ago
  Anecdotally, many people at OpenAI, Nvidia, Oracle, etc., sincerely believe their company's own hype. They remind me of the story about the oil prospector in Warren Buffett's year-end 1985 letter to Berkshire Hathaway shareholders: > An oil prospector, moving to his heavenly reward, was met by St. Peter with bad news. “You’re qualified for residence”, said St. Peter, “but, as you can see, the compound reserved for oil men is packed. There’s no way to squeeze you in.” After thinking a moment, the prospector asked if he might say just four words to the present occupants. That seemed harmless to St. Peter, so the prospector cupped his hands and yelled, “Oil discovered in hell.” Immediately the gate to the compound opened and all of the oil men marched out to head for the nether regions. Impressed, St. Peter invited the prospector to move in and make himself comfortable. The prospector paused. “No,” he said, “I think I’ll go along with the rest of the boys. There might be some truth to that rumor after all.” Source: https://berkshirehathaway.com/letters/1985.html https://berkshirehathaway.com/letters/1985.html
  • jamauro 1y ago
    Feels ironic now that Warren is himself an oil prospector with his Occidental stake.
  • tim333 1y ago
    Both Jensen Huang and Sam Altman seem to believe. Here's them 2 weeks ago being interviewed https://www.youtube.com/watch?v=jVBzsg3yCK4&t=40s https://www.youtube.com/watch?v=jVBzsg3yCK4&t=40s Also Brockman: >And so, you really want every person to be able to have their own dedicated GPU, right? So, you're talking order of 10 billion GPUs we're going to need. This deal we're talking about, it's for millions of GPUs. Like, we're still three orders of magnitude off of where we need to be. So we're doing our best to provide compute availability, but we're heading to this world where the whole economy is powered by compute... (15 min in)
    • dustbunny 1y ago
      "this world where the whole economy is powered by compute" Is actually laughable.
• random9749832 1y ago
  We are fully in the grifting stage of society. No one wants to work anymore and everyone wants to invest in imaginary outcomes (cryptocoins (most of which no one uses with little to no real use cases) and now AGI (science fiction)). Once the stock market crashes within an already low trust brittle society I imagine that there will be catastrophic outcomes. Maybe I am just a doomer who needs to touch grass but maybe not.
• mixedbit 1y ago
  Here is money printing scheme that looks to be at work: Initial situation: * Big corp M has X$ in cash where X is huge Big Corp M invest X$ in AI startup O, with a provision that O needs to use most of the money to buy cloud infrastructure from M to power AI models. End situation: * Big corp M has X$ wort of shares in O, the value of which will rapidly grow * Big corp M cloud division has ~X$ in extra revenue The deal automatically turns X$ into ~2X$ in books. Rinse and repeat with next round deals and next AI startups. The big corps are reporting increased cloud divisions revenue from AI spent, but it is their own investment money flowing back to cloud divisions.
  • crazygringo 1y ago
    > The deal automatically turns X$ into ~2X$ in books. No it doesn't. The revenue it gets back is valued only at a fraction, because it's only worth its profit. Revenue != profit. And your "the value of which will rapidly grow" is doing all the work here. That's not guaranteed. It might collapse as well. It's not money printing at all. It's tying up cash long-term in exchange for a much smaller amount of profit short-term. Which is risky but entirely normal. Nothing "money printing" about it.
    • mixedbit 1y ago
      To be precise I wrote 'in books' which record also revenue, not just profits. Increasing cloud revenue is one of the things that drives big corps share price up, the missing bit is that this revenue comes from big corps themself. The growth investors mantra is that as long as revenue is increasing rapidly, they don't care much about today's profits, this is why so many unprofitable companies have crazy high valuation.
      • deleted 1y ago
        [deleted]
• ineedasername 1y ago
  “Web of circular deals” Welcome to how economies work. You only worry when you can see where the ends of the circle meet up. Ponzi schemes are notable specifically due primarily to the fact that they’re so directional and one-way.
• ineedasername 1y ago
  “Web of circular deals” Welcome to how economies work. You only worry when you can’t see where the ends of the circle meet up. Ponzi schemes are notable specifically due primarily to the fact that they’re so directional and one-way. If you can’t pinpoint the escapement and see how it’s feeding into the winding of some other spring, walk away.
  • rchaud 1y ago
    What economy has this much money moving between 7 companies across such a narrow set of operations?
• crazygringo 1y ago
  > Two weeks ago, Nvidia Corp. agreed to invest as much as $100 billion in OpenAI to help the leading AI startup fund a data-center buildout so massive it could power a major city. OpenAI in turn committed to filling those sites with millions of Nvidia chips. The arrangement was promptly criticized for its “circular” nature. That's not a "circular" deal, that's a... regular deal. I genuinely don't understand the criticism here. Every business deal is -- I'll do something for you, you do something for me, and we'll both be better off. That's the free market. Regardless of whether AI is a bubble, this is just business as usual.
  • refulgentis 1y ago
    A healthy two‑way exchange isn’t the issue, as you note, partners routinely buy from each other. The problem critics flagged here is that this particular arrangement starts to resemble “vendor financing” or a circular funding loop. Nvidia commits up to $100 billion to OpenAI. OpenAI then uses that money to buy Nvidia’s chips. Nvidia books the revenue and likely earns equity or upside in OpenAI. On paper, both sides look like they’re growing dramatically. But it’s the same capital being passed around, and it makes it harder to tell how much real, third‑party demand is driving those numbers. Why people worry: • Real demand vs. vendor financing: When the supplier is effectively fronting the cash for the customer’s purchases, it’s not the same as independent spending from end users. Investors and regulators want to see whether OpenAI could buy all those chips without Nvidia’s financing. • Confusing financials: Nvidia appears to rack up huge sales, while OpenAI’s balance sheet swells with cutting-edge hardware financed by Nvidia. Untangling how much of each company’s “growth” is externally driven versus funded by the other side becomes tricky. • Risk concentration: Nvidia’s fortunes would hinge on OpenAI delivering an multi-trillion-dollar scale business to justify the investment. If AI demand doesn’t materialize as hoped, Nvidia isn’t just missing chip sales, it’s directly exposed to OpenAI’s downside. • Governance & optics: When vendor and customer roles blur, people question whether decisions are being made to satisfy true market demand or to juice financial metrics and valuations. So it’s not that reciprocal deals are bad; it’s that circular, high-dollar deals can obscure what’s actually happening under the hood. That’s why folks are raising eyebrows. It’s like Sam giving Pat a $20 “investment,” and Pat immediately spending that same $20 to buy Sam’s lunch vouchers. Sam says, “I sold $20 of lunches!” Pat says, “I’ve got $20 in lunches!” But really, it’s one $20 bill just doing a lap. I'm generally of the same take as you: this reads much more to me like 2009-2013 Apple where they fronted cash to suppliers to do build outs and get to the 10x scale Apple needed ASAP. People looking at this as "proof" there's a "bubble" scare me.
• qoez 1y ago
  Feels like some GPD hack where you could make it fake grow by just handing money around in a loop between actors.
• alecco 1y ago
  If the AI bubble bursts, there's a high chance the Everything Bubble bursts right after. And then USD goes gg. I think part of the problem is investors are counting on infinite bailouts because AI is too big to fail. But that also causes USD erosion. I have no clue what is the way out no matter who is in the driver's seat. And speaking of that, we had a decade of incompetent people in key positions at the Fed/Treasury, BoE, and CBE. But "nothing ever happens".