Analysts said that a practice called circular financing in AI infrastructure deals may be inflating demand and creating a market bubble [1, 2].
This trend matters because if the underlying growth of artificial intelligence does not materialize, the recycling of the same capital across multiple projects could create systemic risk for the global economy [1, 2].
The concern centers on Nvidia Corp. and the massive amounts of third-party capital flowing through its AI deals. Some reports indicate Nvidia will receive over $500 billion [1] of third-party capital for AI projects, while other estimates suggest new infrastructure deals could be worth more than $750 billion [3, 4].
Circular financing occurs when investment firms and banks provide capital that cycles through various partners to purchase hardware, effectively creating a loop of funding. This process can make demand for AI chips appear higher than actual organic growth suggests [1, 2].
Investment analyst Michael Burry said he has raised alarms regarding this web of financing [2]. He said that corporate America is expected to spend about $770 billion [2] on AI infrastructure this year.
These deals often involve global partners, including the South Korean conglomerate SK [3, 4]. The scale of these investments has deepened fears that the AI sector is mirroring previous tech bubbles by prioritizing capital flow over sustainable utility [4].
Nvidia said it has addressed these concerns as the company continues to lead the hardware market for AI data centers [1]. However, the disparity in reported figures—ranging from $500 billion [1] to $750 billion [3]—highlights the complexity of tracking these capital flows.
“Circular financing occurs when investment firms and banks provide capital that cycles through various partners to purchase hardware.”
The debate over circular financing suggests a tension between rapid infrastructure scaling and actual revenue generation. If AI companies cannot convert these massive hardware investments into profitable services, the perceived demand driven by recycled capital may collapse, potentially triggering a broader correction in the tech sector.
