A key red flag in the AI sector is circular financing, where a company like NVIDIA invests in a startup that then uses the funds to purchase NVIDIA's products. This creates a closed loop that can artificially inflate revenue and demand metrics, a tactic reminiscent of the dot-com bubble.

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.

Seemingly strange deals, like NVIDIA investing in companies that then buy its GPUs, serve a deep strategic purpose. It's not just financial engineering; it's a way to forge co-dependent alliances, secure its central role in the ecosystem, and effectively anoint winners in the AI arms race.

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.

Investor James Anderson confirms that NVIDIA investing in its own customers creates a circular flow of capital reminiscent of Lucent's practices during the dot-com bubble. This signals a risk of excessive short-term investment that may lead to a future market downdraft.

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.

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.

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.