AI Boom Fueled by Giant Tech’s Circular Investments — Bubble or Breakthrough?

The Loop of Big Tech Money: Driving AI’s Rise — or Setting the Stage for a Crash?

According to NBC, a powerful “investment loop” among tech giants is fueling the current artificial intelligence boom: Nvidia plans to invest in OpenAI; OpenAI purchases cloud services from Oracle; Oracle buys chips from Nvidia; and Nvidia owns a stake in CoreWeave, which provides AI infrastructure for OpenAI.

This intricate network of reciprocal deals has become a central force behind AI’s meteoric rise. As AI transforms the way humans live and work, a small cluster of companies now wields enormous influence through intertwined capital and compute power.

Some of these collaborations are worth hundreds of billions of dollars — collectively boosting company valuations and driving U.S. stock indices to record highs.

Yet analysts warn that this closed loop of capital could be creating an illusion of growth, masking the risk of an eventual collapse.

Analysts Sound the Alarm

Oxford Economics wrote in a recent report that while history may not repeat the dot-com crash of 25 years ago, the scale of current tech investments “shows companies are taking massive risks.”

If AI’s promised productivity gains are overstated or delayed, a “sharp correction in tech stocks could spill over to the real economy,” the report cautioned.

Inside the Investment Web

The latest example surfaced Monday: OpenAI announced a partnership with chipmaker AMD, under which it will buy AMD chips and gain rights to acquire up to 10% of AMD’s stock.

Weeks earlier, Nvidia pledged to invest up to $100 billion in OpenAI — a move CEO Jensen Huang called “an investment in the next multi-trillion-dollar company.”

Meanwhile, Nvidia’s indirect ties with OpenAI run through CoreWeave, a cloud provider partly owned by Nvidia that supplies OpenAI with GPU-based infrastructure.

Oracle, for its part, plans to spend $40 billion on Nvidia chips to power OpenAI data centers, and together with SoftBank, it’s backing the $500 billion “Stargate” data center initiative — where Nvidia is the core technology partner and SoftBank holds $3 billion in Nvidia stock.

Echoes of the Dot-Com Era

To some analysts, the resemblance to the pre-2000 internet bubble is striking. In March 2000, the Nasdaq plunged 77%, erasing trillions in value — and took 15 years to recover.

Gil Luria, Managing Director at D.A. Davidson, warned that the AI ecosystem “has both healthy and unhealthy parts.” The unhealthy side, he noted, is marked by related-party deals that can “artificially inflate valuations.”

“When investors realize the giants are too interconnected,” he said, “deflationary pressure sets in — Wall Street’s code for a bursting bubble.”

Boom, Bust, and Billions

Sam Altman of OpenAI remains unfazed. Visiting the company’s new Texas data center, he said, “Every industry goes through cycles of boom and bust. People will overinvest and lose money; others will underinvest and miss out.”

Despite such volatility, investors remain hypnotized by AI’s staggering potential returns. Peter Boockvar of OnePoint BFG Wealth Partners wrote, “To keep this massive experiment from ending badly, OpenAI and its peers must generate enormous revenue and profits to justify their obligations.”

As of this week, over 35% of the S&P 500’s total market cap — $20 trillion — is concentrated in just seven tech giants: Apple, Google’s Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla. All are heavily entrenched in AI.

The AI boom may be real — but with money circulating in an ever-tighter loop, the line between innovation and illusion grows thinner by the day.