Nvidia's Money Maze: Is AI Boom Built on Shaky Ground?

The Tangled Web of Deals

Nvidia's recent $100 billion investment in OpenAI has ignited discussions about the nature of the AI boom. The company is not just selling chips; it's also lending money and taking stakes in companies like OpenAI and Coreweave. These companies, in turn, buy more chips from Nvidia, creating a cycle that might be skewing the perception of real demand for AI.

The Complex Puzzle

The problem lies in the complexity of these transactions. Nvidia's investments, though small individually, add up to a significant sum. Additionally, deals with cloud service providers add more layers to this intricate puzzle.

The Coreweave Example

Take Coreweave, for instance. Nvidia owns a substantial portion of the company and has agreed to purchase unsold cloud capacity. Coreweave, on the other hand, buys Nvidia's expensive GPUs. This creates a loop where the money Nvidia invests often flows back to it.

Similar Deals and Criticisms

This isn't an isolated case. Nvidia has similar arrangements with other companies like Lambda, essentially renting its own chips back from them. Critics argue that this could be a sign of an AI bubble, where money circulates in loops rather than reflecting genuine growth.

Analysts' Concerns

Some analysts draw parallels to the dot-com bubble, where companies lent money to customers to purchase their products. When the bubble burst, those loans turned into bad debt.

Potential Risks

While Nvidia's deals might be beneficial for AI companies in the short term, they could backfire if AI demand doesn't meet expectations. Nvidia might then be left with unsold chips and bad loans.