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 company with a 20x P/E could acquire a firm with a 5x P/E using stock. The acquired earnings were then instantly re-rated at the parent's higher multiple, manufacturing EPS growth and creating huge paper gains without any operational improvements. This financial engineering masqueraded as business genius.

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.

Tech giants like Google and Amazon report massive profits partly from paper markups on their investments in AI labs like Anthropic. These labs then spend the investment capital on cloud services from their investors, creating a fragile, self-referential financial ecosystem.

Some tech companies have doubled the depreciable life of their AI hardware (e.g., from 3 to 6 years) for accounting purposes. This inflates reported earnings, but it contradicts the economic reality that rapid innovation is shortening the chips' actual useful life, creating a significant red flag for earnings quality.

Companies like NVIDIA invest billions in AI startups (e.g., OpenAI) with the understanding the money will be spent on their chips. This "round tripping" creates massive, artificial market cap growth but is incredibly fragile and reminiscent of the dot-com bubble's accounting tricks.

Profits from AI infrastructure (e.g., NVIDIA chips) can be misleading. The customer's purchase may be funded by a venture investment from the seller itself, making the revenue less recurring than it appears and complicating traditional valuation methods.

Explosive growth in cloud divisions (e.g., Google Cloud's 63%) may be artificially inflated. A significant portion of this revenue comes from AI startups spending the venture capital they raised—often from the cloud providers' own venture arms—on cloud credits, creating a circular funding loop.

Large tech firms invest in AI startups who then agree to spend that money on the investor's services. This creates a "circular" flow of cash that boosts the startup's perceived revenue and the tech giant's AI-related sales, creating questionable accounting.