circular financing

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Commodification of Intelligence: Good, Bad, and Ugly Circular AI Deals
2 months ago
- Circular deals in AI (e.g., OpenAI spending Microsoft money on Microsoft servers) are criticized but not inherently bad; they resemble commodity market financing.
- AI compute is becoming a fungible commodity like electricity, with GPUs and data centers being resellable to others if not needed.
- Circular deals help finance capital-intensive AI infrastructure through off-take agreements, equity stakes, and guaranteed customers, similar to oil and critical minerals deals.
- Examples include Nvidia backing CoreWeave, SpaceX leasing data centers at premium, and Google backstopping TeraWulf bonds via Fluidstack and Anthropic.
- Risks include overextension by lenders, off-balance-sheet debt, and potential for risky securitization akin to 2007 mortgage-backed securities.
- The AI debt market could grow to $7 trillion by 2029, becoming the second largest asset-backed debt market after US mortgages.
Circular financing ain’t what it used to be
2 months ago
- Oracle's $300 billion deal with OpenAI in September 2025 caused a stock surge but was criticized as unsustainable.
- Nvidia is considering a $250 billion backstop for an OpenAI-led data center, but the market views it as desperation rather than good news.
- Apple, once mocked for not investing heavily in AI, has overtaken Nvidia in market performance.
- SpaceX, which positioned itself as an AI company, has dropped over 25% in the last month and more than 50% from its June high.
- Creditors are becoming wary of circular financing and off-balance-sheet financing, signaling trouble for the AI boom.
- The GenAI boom has been sustained by hope and circular financing rather than profits, and this may no longer be enough.
Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom
3 months ago
- Neoclouds like CoreWeave and Nebius are experiencing rapid growth due to hyperscaler demand for AI infrastructure, but they face profitability challenges due to high debt and cash flow mismatches.
- Hyperscalers such as Microsoft and Meta are making massive long-term commitments to neoclouds, exceeding $145 billion, to quickly access latest GPUs, optimize utilization, and shift costs from capex to opex.
- Nvidia plays a key role through circular financing, investing in neoclouds like CoreWeave and Nebius while also serving as their GPU supplier and providing financial backstops for unsold capacity.
- CoreWeave relies heavily on GPU-backed debt, with rising interest expenses pressuring profitability, while Nebius has a stronger balance sheet but still faces significant funding needs for expansion.
- The neocloud model balances surging AI demand with risks from rising debt, interest rates, and dependence on Nvidia's support, raising questions about long-term sustainability.

circular financing

Commodification of Intelligence: Good, Bad, and Ugly Circular AI Deals

Circular financing ain’t what it used to be

Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom