AI’s Web Of Circular Deals May Just Get Bigger: Amazon Said To Be Weighing $10B Investment In OpenAI

Critics argue that such “circular deals” artificially inflate revenues and valuations, heightening concerns about the risk of an AI bubble.

• Amazon is reportedly eyeing a $10 billion investment in OpenAI, with the deal including OpenAI's use of its Trainium chip.
• The development is only the last in a series investment-cum-barter deals in the AI industry, which critics say are artificially propping up valuations and leading to concentration risk.
• OpenAI and Nvidia have built a tightly interlinked web, acting as investors and customers across major AI and cloud companies.

Amazon.com Inc. is reportedly eyeing a $10 billion investment in OpenAI in a deal that would see the AI heavyweight use Amazon’s Trainium chip for specific workloads – in what would be the latest in a series of investment-cum-barter trades that are collectively fueling the AI industry.

Not only have AI deals surged this year, but they also exhibit worrying characteristics: infrastructure suppliers, cloud providers, and AI companies are increasingly investing in one another while simultaneously transacting billions of dollars in goods and services.

A Financial Ouroboros

These transactions are known as “circular deals.” They prop up revenue and valuations for the parties involved but also create a financial ouroboros (a symbol depicting a snake eating its own tail) in which the same capital flows around, binding the fates of numerous companies – and, in this case, ratcheting up the risks of an AI bubble. It’s great uptill the trends point upwards, but can create ripple effects across the market during a slowdown.

The Amazon deal report follows Amazon Web Services' signing of a cloud deal with OpenAI. Amazon is one of the most prominent investors in OpenAI rival Anthropic, the firm behind the Claude AI bot, and a cloud vendor to dozens of AI companies.

Most Deals Link Back To Nvidia, OpenAI 

The most prominent signal of the AI bonhomie came in October when Nvidia said it was investing $100 billion in OpenAI, which would then, in return, purchase Nvidia chips. In the same week, OpenAI struck a similar deal with Nvidia rival Advanced Micro Devices, prompting a spike in AMD stock, and a separate $300 billion deal with Oracle to build out data centers in the U.S. 

Oracle, in turn, is spending billions on Nvidia chips for those facilities, funneling capital back to Nvidia, which is emerging as one of OpenAI’s most prominent backers. 

According to a Bloomberg analysis, the circular investments could be traced back to two leading companies: Nvidia and OpenAI.

Relationship <	Description<
Nvidia and OpenAI	Nvidia agrees to invest up to $100 billion in OpenAI.
OpenAI and Oracle	OpenAI inks a $300 billion cloud deal with Oracle.
Nvidia and CoreWeave	Nvidia buys $6.3 billion of cloud services from CoreWeave.
OpenAI and CoreWeave	OpenAI to pay CoreWeave as much as $22.4 billion.
OpenAI and AMD	OpenAI agrees to deploy billions of dollars worth of AMD chips.
US and Intel	US takes a 10% stake in Intel using CHIPS Act funding.
Nvidia and Intel	Nvidia invests $5 billion in Intel and plans to co-develop chips.
US and Nvidia	US takes a 15% cut of Nvidia and AMD's chip sales to China

Source: Bloomberg<
Note: The table is not exhaustive.<

Reducing its reliance on its chief investor, Microsoft, OpenAI has struck computing deals totaling billions of dollars with Nvidia, AMD, Oracle, Broadcom, and CoreWeave. 

Nvidia has invested in about 50 AI companies last year and is on track to surpass that number this year, according to Bloomberg. The chip designer owns an over 5% stake in CoreWeave, one of the breakout successes on Wall Street this year, and has committed to a $6.3 billion "backstop" agreement, guaranteeing it will purchase any unsold cloud capacity through 2032. 

Oracle Showing Stress Signs

OpenAI is also an investor in CoreWeave, while Nvidia is planning to invest in Elon Musk’s xAI. All of these investment deals involve sales of cloud services.

Now, AI companies are hitting the debt markets. OpenAI and xAI are reportedly tapping Wall Street banks to finance their grand infrastructure plans.

Speaking of the Nvidia-OpenAI deal, Bernstein Research analyst wrote in a recent note that, “The action will clearly fuel ‘circular’ concerns.” For one, the concerns have hit Oracle, whose stock crashed last week after its recent quarterly report showed negative cash flow, high debt, and concentration risk.

For updates and corrections, email newsroom[at]stocktwits[dot]com.<