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.

Google Cloud's impressive growth is attributed to servicing the massive compute needs of Anthropic, a company it heavily invested in. This highlights a circular dynamic where cloud providers fund AI companies, which in turn become their captive, high-margin customers for GPUs and TPUs.

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.

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.

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.

Cloud providers invest in AI companies, who then spend that capital back on the provider's services. This creates a "circular deal" where demand is artificially generated and growth is enhanced. While this accelerates the industry, it inflates the market and delays a potential correction by masking true unit economics.

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.