Major cloud providers like Amazon are making multi-billion dollar investments in AI startups like Anthropic, which then commit to spending that money back on the provider's cloud services. This "circular" financial arrangement locks in future revenue and inflates growth metrics with non-organic activity.

A massive portion of cloud providers' growth comes from just two AI companies, OpenAI and Anthropic. Since these same providers (e.g., Microsoft, Google) are also major investors in those startups, it creates a circular economy where investment capital flows directly back as revenue for compute.

The AI ecosystem appears profitable but is often a circular cash flow. Tech giants invest in AI startups, which then use that money to buy services (chips, cloud) from the same investors. This creates the illusion of a robust market without requiring significant outside customer revenue.

It's increasingly difficult to gauge the true profitability of cloud businesses due to circular investments. Tech giants invest in AI startups, which then use that capital (often in the form of cloud credits or vouchers) to pay for compute on the investor's platform, inflating reported revenue growth without a corresponding cash transaction.

The AI ecosystem appears to have circular cash flows. For example, Microsoft invests billions in OpenAI, which then uses that money to pay Microsoft for compute services. This creates revenue for Microsoft while funding OpenAI, but it raises investor concerns about how much organic, external demand truly exists for these costly services.

Major cloud providers invest billions in AI labs like Anthropic and OpenAI, who then commit to spending those billions back on the providers' cloud services. This circular flow significantly inflates revenue backlogs, raising questions about whether the growth is sustainable or symptomatic of an AI bubble.

Companies like Microsoft and Google invest in AI firms like OpenAI, which then spend that capital on their cloud services. This creates the illusion of diverse, organic demand when it's heavily concentrated and effectively self-funded, masking underlying weakness.

The staggering cloud revenue growth from companies like Amazon and Microsoft is not purely organic. A significant portion comes from a circular flow of capital: they invest billions in AI startups, and those startups spend the money back on their cloud infrastructure. This creates impressive but potentially misleading growth metrics.

A circular economy is forming in AI, where capital flows between major players. NVIDIA invests $100B in OpenAI, which uses the funds to buy compute from Oracle, who in turn buys GPUs from NVIDIA. This self-reinforcing loop concentrates capital and drives up valuations across the ecosystem.