The capital for upcoming mega-IPOs from companies like SpaceX, OpenAI, and Anthropic will not come from the sidelines. It will be reallocated from existing public tech companies, causing their price-to-earnings multiples to shrink as investors realize the new AI-native companies will erode their moats and capture future value.

The AI boom is fueled by 'club deals' where large companies invest in startups with the expectation that the funds will be spent on the investor's own products. This creates a circular, self-reinforcing valuation bubble that is highly vulnerable to collapse, as the failure of one company can trigger a cascading failure across the entire interconnected system.

A significant portion of AI industry revenue is illusory, consisting of circular payments. For instance, NVIDIA invests in a company like OpenAI, which then uses the funds to buy NVIDIA's chips. This creates the appearance of strong revenue growth while masking the industry's financial fragility.

The AI industry's circular financing model means a failed Anthropic IPO could trigger a domino effect. As tech giants are both investors and vendors, a valuation cut would force write-downs and contract cancellations, causing cascading losses for Amazon, Microsoft, and Nvidia, and devaluing peers like OpenAI.

Private markets value AI firms on stratospheric growth potential, while public markets demand predictable revenue. This divergence, highlighted by Anthropic's leaked financials, creates significant friction and uncertainty for companies planning to go public, potentially delaying or devaluing IPOs.

A new AI investment model involves tech giants like Microsoft funding labs like Anthropic, which then spend more on the investors' cloud platforms. This self-referential 'circularity' is now viewed with suspicion by public markets, causing share prices to drop—a stark reversal from the initial hype that surrounded OpenAI's partnerships.

The capital financing AI—from venture and credit to public markets—is so deeply interwoven that the system is fragile. Experts warn this creates systemic risk where a single negative event, like a major struggling AI IPO, could rapidly shift sentiment from the current "peak buoyancy" and trigger a broad market correction.

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.

The current market is unique in that a handful of private AI companies like OpenAI have an outsized, direct impact on the valuations of many public companies. This makes it essential for public market investors to deeply understand private market developments to make informed decisions.