Atlassian's CEO points out the current financial loop in AI: VCs fund startups, which pay for models, which pay for cloud, which pays for chips, with everyone losing money along the way. He cautions that sustainable business models are not yet established.
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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.
Current AI investment patterns mirror the "round-tripping" seen in the late '90s tech bubble. For example, NVIDIA invests billions in a startup like OpenAI, which then uses that capital to purchase NVIDIA chips. This creates an illusion of demand and inflated valuations, masking the lack of real, external customer revenue.
Martin Shkreli reframes the critique of circular AI investments (e.g., Nvidia invests in OpenAI, which pays Oracle, which buys Nvidia chips). He argues this isn't a flaw but simply an "economy." Its legitimacy is proven not by internal transactions, but by the strong and growing demand from outside users and companies.
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.
Hedge fund manager David Einhorn highlights the unstable economics of the AI supply chain, where money flows circularly with diminishing returns. For every $1 a consumer pays OpenAI, OpenAI spends $2 on Microsoft, which spends $0.60 on CoreWeave, which then spends $2.40 on NVIDIA. This questions the long-term profitability and sustainability of the entire ecosystem as currently structured.
The AI boom's sustainability is questionable due to the disparity between capital spent on computing and actual AI-generated revenue. OpenAI's plan to spend $1.4 trillion while earning ~$20 billion annually highlights a model dependent on future payoffs, making it vulnerable to shifts in investor sentiment.
The current trend of AI infrastructure providers investing in their largest customers, who then use that capital to buy their products, mirrors the risky vendor financing seen in the dot-com bubble. This creates circular capital flows and potential systemic risk.
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.
The AI infrastructure boom is a potential house of cards. A single dollar of end-user revenue paid to a company like OpenAI can become $8 of "seeming revenue" as it cascades through the value chain to Microsoft, CoreWeave, and NVIDIA, supporting an unsustainable $100 of equity market value.
