The Circular Funding Phenomenon in AI: Understanding the Trillion-Dollar Web

By BurmBuck Team • 10/21/2025 • 5 min read
Categories: Valuations

Imagine you want to buy a car worth $10,000, but you don't have the money. Then the car dealer says, "No problem! I'll lend you the money to buy the car from me." It sounds convenient, even a bit strange. Now imagine this happening not with thousands of dollars, but with trillions, and not between a dealer and a customer, but among the world's most valuable technology companies. Welcome to the world of circular funding in artificial intelligence—a financial arrangement that's creating both unprecedented wealth and growing concerns about the future of the AI industry.

What is Circular Funding?

Circular funding, sometimes called "vendor financing" or "roundtripping," is a business arrangement where companies invest in each other and rely on mutual spending to generate revenue. In the simplest terms, it's like a circle of friends who all lend each other money and buy things from each other using that same money. The cash keeps flowing in a loop, creating the appearance of robust business activity.

In the AI industry today, this looks like: Company A invests billions in Company B, which then uses that money to buy products or services from Company A, which in turn uses that revenue to justify higher valuations and make more investments. It's a financial merry-go-round that has already created over $1 trillion in market value for the companies involved.

The Players in the AI Circular Funding Web

To understand how this works, let's meet the main characters in this trillion-dollar story:

Nvidia: The undisputed king of AI chips. Nvidia makes the graphics processing units (GPUs) that power AI systems. The company's value has soared past $4 trillion in 2025, making it periodically the world's most valuable company. Nvidia doesn't just sell chips—it also invests heavily in its customers.

OpenAI: The creator of ChatGPT, valued at approximately $500 billion as of late 2025. OpenAI needs massive computing power to train and run its AI models, which means it needs lots of chips and data centers. However, OpenAI is currently generating only about $13 billion in annual revenue while committing to spend hundreds of billions on infrastructure.

CoreWeave: An AI cloud infrastructure company that went public in March 2025. CoreWeave owns over 250,000 Nvidia GPUs across 32 data centers and rents them out to companies like OpenAI. It's become one of the hottest AI stocks, more than doubling since its IPO.

Oracle: The database and cloud computing giant that's building massive data centers for AI workloads. Oracle buys billions of dollars worth of Nvidia chips to power these facilities.

Microsoft, AMD, SoftBank, and others: Supporting players who add more complexity to the web of interconnected deals.

How the Money Flows: Real Examples with Numbers

Let's break down some of the most significant circular funding arrangements that have emerged in 2024 and 2025:

The Nvidia-OpenAI Loop

In September 2025, Nvidia announced plans to invest up to $100 billion in OpenAI over the next decade, with $10 billion installments. Here's where it gets circular: OpenAI has committed to using much of that money to buy Nvidia's GPUs and other hardware.

Think about this: Nvidia gives OpenAI $10 billion. OpenAI then spends that $10 billion buying Nvidia chips. Nvidia records $10 billion in revenue, which helps justify its massive valuation. The company's stock price rises, increasing its market cap by potentially much more than the $10 billion it spent. Nvidia then uses that increased value to make more investments. The cycle continues.

When this deal was announced, Nvidia's market value increased by more than the total amount pledged—meaning the market rewarded the circular arrangement itself, independent of whether real end-user demand existed.

The OpenAI-Oracle-Nvidia Triangle

In July 2025, OpenAI signed a $300 billion, five-year cloud computing contract with Oracle—one of the largest cloud deals ever recorded. To fulfill this contract, Oracle needs to buy approximately $40 billion worth of Nvidia chips to build out its data centers.

Follow the money: OpenAI pays Oracle $60 billion per year (starting in 2027). Oracle uses a large portion of that revenue to purchase Nvidia chips. Nvidia, meanwhile, is also an investor in OpenAI. So money flows from Nvidia to OpenAI, from OpenAI to Oracle, and from Oracle back to Nvidia. It's a perfect circle.

This deal briefly made Oracle CEO Larry Ellison the world's richest person as Oracle's stock surged following the announcement.

The CoreWeave Connection

CoreWeave presents perhaps the clearest example of circular interdependence. Here are the numbers:

The circular nature becomes clear: Nvidia invests in CoreWeave. CoreWeave buys GPUs from Nvidia. OpenAI invests in CoreWeave. CoreWeave provides infrastructure to OpenAI, which is also funded by Nvidia. Everyone is simultaneously investor, supplier, and customer to everyone else.

The Numbers That Raise Eyebrows

Let's put some perspective on the scale of these arrangements with specific calculations:

The Revenue Math:

The Nvidia OpenAI Deal Impact:

The Scale Compared to Real Cash Flow:

CoreWeave's Debt Load:

Why Companies Do This

Despite the concerns, there are legitimate business reasons why these circular arrangements exist:

1. Speed to Market: Building data centers takes three to six years. By financing customers, suppliers can accelerate deployment and capture market share quickly.

2. Strategic Lock-In: If Nvidia invests in OpenAI and CoreWeave, those companies are more likely to continue buying Nvidia chips rather than switching to competitors like AMD or custom chips from Broadcom.

3. Shared Risk and Reward: These arrangements create aligned incentives. If AI succeeds, everyone profits. Nvidia CEO Jensen Huang has described this as supporting "next-generation AI infrastructure."

4. Access to Capital: OpenAI and similar companies can access billions in funding that might not be available through traditional venture capital or debt markets, especially given their massive capital needs and current lack of profitability.

5. Ecosystem Building: Companies argue they're building an interconnected ecosystem where collaboration benefits everyone. CoreWeave CEO Mike Intrator told CNBC: "The largest tech companies in the world are purchasing this infrastructure because they have demand. There's nothing circular about that."

The Bubble Concerns: Echoes of the Past

Many analysts and investors are drawing uncomfortable parallels to the dot-com bubble of the late 1990s and early 2000s. Here's why:

The Dot-Com Comparison: In the late 1990s, telecommunications equipment makers like Lucent Technologies and Nortel Networks would lend money to internet startups, who would then use that money to buy equipment from those same manufacturers. Everyone's revenues looked great on paper. Stock prices soared. Then, when the music stopped and startups couldn't pay back their loans, the entire house of cards collapsed.

The key difference often cited: Today's players are established companies with real businesses, not startups burning through venture capital. Microsoft, Google, Amazon, and Meta—collectively known as the "Magnificent Seven" with Apple, Nvidia, and Tesla—now represent over 35% of the entire S&P 500's market value, roughly $20 trillion.

Valuation Concerns:

The Critical Question: According to a Bain & Company report, AI companies will need approximately $2 trillion in annual revenue by 2030 to justify the infrastructure spending being committed today. That's more than the combined 2024 revenue of Alphabet, Amazon, Apple, Meta, Microsoft, and Nvidia. Currently, OpenAI generates about $13 billion annually, while ChatGPT has 800 million weekly users (up from 500 million earlier in 2025), but most use free versions.

The Risks: What Could Go Wrong

1. Demand Shortfall: If companies and consumers don't adopt AI at the pace expected, the revenue won't materialize to pay back the massive investments. OpenAI would struggle to pay Oracle, Oracle couldn't pay Nvidia, and the cycle would break.

2. Correlation Risk: When everyone is interconnected, a problem at one company cascades throughout the system. If OpenAI stumbles, it affects CoreWeave's revenue, which affects Nvidia's investment value, which impacts Oracle's customer base. One weak link threatens the entire chain.

3. Technology Disruption: What if a new type of chip or computing architecture makes Nvidia's GPUs less essential? CoreWeave owns 250,000 GPUs that would depreciate rapidly. The company is already borrowing against older-generation Hopper chips to buy newer models—a treadmill that never stops.

4. Regulatory Intervention: Antitrust regulators might see these arrangements as anticompetitive. In the late 1990s, Intel faced investigations for similar practices involving "hidden rebates" for companies using its chips.

5. Financial Contagion: CoreWeave alone carries approximately $12 billion in high-interest debt. If AI demand softens even temporarily, debt servicing becomes unsustainable. Other companies in the ecosystem face similar pressures.

The Counterargument: Why This Time Might Be Different

Not everyone is worried. Supporters of current AI funding patterns point to several factors:

1. Real Adoption: ChatGPT has 800 million weekly active users—actual usage, not just hype. Enterprises are deploying AI across industries from healthcare to finance to manufacturing.

2. Strong Balance Sheets: Unlike dot-com era startups, today's AI investors are cash-rich giants. Microsoft has allocated $80 billion for AI infrastructure in fiscal 2025. Meta has earmarked $68 billion. These companies can afford the investments from operating cash flow.

3. Early Innings: AI adoption is still in its infancy. The technology is improving rapidly, and new use cases emerge constantly. OpenAI CEO Sam Altman says he's "never been more confident in the research road map."

4. Necessary Scale: To achieve artificial general intelligence (AGI) or even just highly capable AI systems, massive infrastructure investment is unavoidable. The alternative—not investing—means falling behind competitors.

5. Limited Circularity: UBS analysts note that while significant, circular deals aren't overwhelming. The OpenAI-Nvidia arrangement represents roughly 13% of Nvidia's projected 2026 revenue—substantial but not company-defining.

Understanding the Stakes

The implications of this circular funding web extend far beyond the companies involved:

Market Impact: AI-related companies account for nearly a third of all venture capital funding in 2024, with over $100 billion invested—up more than 80% from 2023's $55.6 billion. This concentration means that if AI disappoints, the entire market could suffer.

Economic Bet: With 25-30% of the S&P 500's total market value predicated on AI progress continuing on schedule, this represents a massive economic bet. If scaling hits unexpected walls, the unwinding could rival or exceed the dot-com crash.

Energy and Infrastructure: The physical infrastructure being built is enormous. The OpenAI-Oracle deal alone requires 4.5 gigawatts of electricity—enough to power 4 million homes. By 2030, AI computing could require 200 gigawatts globally.

Winner-Take-All Dynamics: Companies believe those who sit out this race will become irrelevant. This fear drives continued investment even as concerns mount, creating a momentum that's hard to stop.

What This Means for the Average Person

You might wonder why any of this matters if you're not an investor or tech executive. Here's why it's relevant:

1. Your Investments: If you own index funds or a 401(k), you're exposed to these companies. The S&P 500's heavy concentration in AI stocks means your retirement savings are tied to this bet.

2. Economic Ripple Effects: A collapse in AI valuations would affect not just tech stocks but the broader economy, potentially triggering a recession that impacts jobs and growth across all sectors.

3. Technology Access: If these investments pay off, AI could transform healthcare, education, transportation, and countless other aspects of daily life. If they fail, the pace of innovation could slow dramatically.

4. Energy and Environment: The massive data centers being built require enormous amounts of electricity and water for cooling. Your local utility rates and environmental quality could be affected.

Looking Ahead: Scenarios for the Future

Optimistic Scenario: AI adoption accelerates, justifying the investments. OpenAI's revenue grows from $13 billion to hundreds of billions. The circular funding arrangements prove to be wise strategic partnerships. New AI applications create economic value exceeding the infrastructure costs. The S&P 500 continues climbing.

Moderate Scenario: AI proves valuable but growth is slower than expected. Some circular arrangements unwind, causing temporary market volatility. Consolidation occurs—some companies fail or are acquired. The industry matures with more realistic valuations. Real applications emerge but take longer to generate revenue.

Pessimistic Scenario: AI hits scaling limits or fails to generate sufficient revenue. The circular funding loop breaks as companies can't meet their commitments. Stock prices crash, wiping out trillions in market value. A recession follows, similar to the dot-com bust but potentially larger given the scale involved. Bankruptcies ripple through the ecosystem.

The Verdict: Boom or Bubble?

The honest answer is that nobody knows for certain. Even industry insiders acknowledge the uncertainty. Sam Altman admits OpenAI "doesn't have the money yet" to pay for all its planned infrastructure but expresses confidence that future revenues will materialize.

What's clear is that we're witnessing one of the largest financial experiments in history. The scale is unprecedented: trillions of dollars, the world's most valuable companies, and potentially transformative technology all converging in a web of interconnected deals.

Analysts like Stacy Rasgon of Bernstein Research note that Nvidia's investments "will clearly fuel 'circular' concerns." Peter Boockvar of OnePoint BFG Wealth Partners warns: "For this whole massive experiment to work without causing large losses, OpenAI and its peers now have got to generate huge revenues and profits to pay for all the obligations they are signing up for."

The difference between a boom and a bubble often only becomes clear in hindsight. What looks like genius during the upswing can appear reckless when it unwinds. The circular funding in AI could be either the foundation for a new technological age or a house of cards waiting for the first strong wind.

What's Next?

Sam Altman has promised more deals are coming: "You should expect much more from us in the coming months." The AI arms race shows no signs of slowing. Companies are locked in a pattern where not investing means falling behind, even as the risks accumulate.

For investors and observers, the key is understanding what you're betting on. These aren't just individual companies—they're a deeply interconnected ecosystem where success or failure will likely be collective. The circular funding arrangements mean that everyone rises together or falls together.

As we move through 2025 and beyond, watch for these signals:

The trillion-dollar question remains: Is this circular funding building the future, or is it just money chasing its own tail? The answer will shape not just the fortunes of a few tech companies, but the broader economy and the pace of technological progress for years to come.

One thing is certain: we're all along for the ride, whether we realize it or not.

Tags: ai-companies
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