How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

https://www.nytimes.com/interactive/2025/10/31/technology/openai-fundraising-deals.html

by reaperducer • 9 months ago

390 398 9 months ago

andsoitis• 9 months ago

I can understand how someone's approach can be "hack all the things", however, at some point you run into the fundamental boundaries of the box you are in and you can't hack your way around those.

jacquesm3• 9 months ago

That doesn't really matter: as long as there are idiots who will buy your inflated stock you've externalized the problem for yourself whilst staying within the box.

delis-thumbs-7e8• 9 months ago

Lazy Susan is not a hack - it’s a scam.

Flockster2• 9 months ago

https://archive.is/tSrC8

Flockster2• 9 months ago

Okay, that article is a little bit shallow. I just summarises the headlines of the last weeks of circular deals. But is there also a more in depth article that sheds a little more light onto what this actually means? From a financial perspective?

Spooky232• 9 months ago

It’s probably hard to do that in a news context because the real rationales are pretty tight.

Depending on your POV OpenAI and the surrounding AI hype machine is at the extremes either the dawn of a new era, or a metastasized financial cancer that’s going to implode the economy. Reality lies in the middle, and nobody really knows how the story is going to end.

In my personal opinion, “financial innovation” (see: the weird opaque deals funding the frantic data center construction) and bullshit like these circular deals driving speculation is a story we’ve seen time and time again, and it generally ends the same way.

An organization that I’m familiar with is betting on the latter - putting off a $200M data center replacement, figuring they’ll acquire one or two in 2-3 years for $0.20 on the dollar when the PE/private debt market implodes.

gitremote3• 9 months ago

Reality lies in the middle

The argument to moderation/middle ground fallacy is a fallacy.

https://en.wikipedia.org/wiki/Argument_to_moderation

afavour3• 9 months ago

Depending on your POV OpenAI and the surrounding AI hype machine is at the extremes either the dawn of a new era

Eh, in a way they're not mutually exclusive. Look back at the dot com crash: it was all about things like online shopping, which we absolutely take for granted and use every day in 2025. Same for the video game crash in the 80s. They are both an overhyped bubble and and the dawn of a new era.

delis-thumbs-7e8• 9 months ago

Ed Zitron has been shouting into the void about this for quite some time: https://www.wheresyoured.at/the-case-against-generative-ai/

He also has a podcast called Better Offline, which is slightly too ad heavy for my taste. Nevertheless, with my meagre understanding of the large corporate finances I was not able to find any errors in his core argument regardless of his somewhat sensationalist style of writing.

OfficialTurkey2• 9 months ago

My complaint about Ed Zitron is that he's _always_ shouting into the void about something. A lot of the issues he covers are legitimate and deserve the scorn he gives them but at some point it became hard for me to sort the signal from the noise.

enraged_camel• 9 months ago

Ed Zitron sucks because he constantly spitballs on easy to confirm topics and keeps being wrong in ways that should be trivial to check and fix. Case in point:

https://bsky.app/profile/notalawyer.bsky.social/post/3ltkami...

bwhitty• 9 months ago

IMF chief economist has thoughts: https://www.afr.com/wealth/investing/the-crash-that-could-to...

ForHackernews• 9 months ago

"You give me a million GPUs for free, I'll announce that you have sacrificed a million GPUs to the machine gods, and your stock price will spike 200 times the value of those GPUs."

rw3• 9 months ago

Hank green did a vlog on this a few weeks ago and it’s a great explainer.

gtirloni• 9 months ago

This one? https://www.youtube.com/watch?v=Vz0oQ0v0W10

This comment is pretty depressing but it seems to be the path we're headed to:

It's bad enough that people think fake videos are real, but they also now think real videos are fake. My channel is all wildlife that I filmed myself in my own yard, and I've had people leaving comments that it's AI, because the lighting is too pretty or the bird is too cute. The real world is pretty and cute all the time, guys! That's why I'm filming it!

Combine this with selecting only what you want to believe in and you can say that video/image that goes against your "facts" is "fake AI". We already have some people in pretty powerful positions doing this to manipulate their bases.

throwaway1063829• 9 months ago

We are heading to an apocalyptic level of psychosis where human beings won't even believe the things they see with their own eyes are real anymore because of being flooded with AI slop 24/7/365.

jimbokun7• 9 months ago

There was a discussion on here recently about a new camera that could prove images taken with it weren't AI fakes, and most of the comments were skeptical anyone would care about such things.

This is an example of how people viscerally hate anyone passing off AI generated images and video as real.

dizzydes• 9 months ago

I feel bad for the guy but I think this confusion will be extraordinary and get people off the internet.

philistine2• 9 months ago

We already have some people in pretty powerful positions doing this to manipulate their bases.

You don't have to be vague. Let's be specific. The President of the United States implied a very real voiceover of President Reagan was AI. Reagan was talking about the fallacy of tariffs as engines of economic growth, and it was used in an ad by the government of Ontario to sow divide within Republicans. It worked, and the President was nakedly mad at being told by daddy Reagan.

JoBrad• 9 months ago

Hank had another video on the interconnectedness of the industry right now, that is very much in the spirit of the original article.

https://youtu.be/Q0TpWitfxPk

righthand• 9 months ago

I honestly don’t get it. People love being swindled? Or people have enough cash to throw into the swindling machine even for no gain? Must be nice.

ak_111• 9 months ago

You can do a lot of money in swindles and bubbles if you time your exit well. There is a fair bit of opportunistic investors who did well in the NFT craze, who speculated knowing fully well that NFT is a craze that will go to zero.

jacquesm3• 9 months ago

The Greater Fool theory of investing strikes again.

itsnowandnever2• 9 months ago

everything will eventually go to zero. we look at some of these things and laugh because we're pretty sure they're going to go to zero within weeks or months vs years. but by the end of all of our lifetimes, most the companies on the stock market will be replaced. the few that won't are probably investment banks like goldman sachs

itsnowandnever2• 9 months ago

these deals are made as part of a market so it's more like musical chairs where every time you change a chair you get a ton of money but you don't want to be the one that's stuck without a chair at the end

ceejayoz• 9 months ago

They've all realized the guy without the chair can be the taxpayer.

KaiserPro• 9 months ago

Modern finance is all about debt.

Central banks don't print money[1] but investment banks do. Think about it like this: Someone deposits $100. The bank pays interest, to make money on to pay that interest, ~$90 is loaned out to someone.

Now, I still have a bank slip that says $100 in the account, and the bank has given $90 of that to someone else. We now have $190 in the economy! The catch is, that money needs to be paid back, so when people need to call in that cash, suddenly the economy only has $10, because the loan needed to be paid back, causing a cash vacuum.

But that paying back is also where the profit is, because you sell off the loan book, and you can get all your money back, including future interest. So you have lent out $90, sold the right to collect the repayments to someone else as a bond, so you now have $120, a profit of $30

That $30 comes pretty much from nowhere. (there are caveats....)

Now we have my bank account, after say a year with $104 in it, the bank has $26 pure profit AND someone has a bond "worth" $90 which pays $8 a year. but guess what, that bond is also a store of value. So even though its debt, it acts as money/value/whatever.

Now, the numbers are made up, so are the percentages. but the broad thrust is there.

[1] they do

uberdru• 9 months ago

I was at a bitcoin conference in 2018. One guy in the booth told me that the company had set up a $100M fund to fund startups that agreed to build apps on their blockchain. I wonder where they are now?

ZiiS• 9 months ago

As long as they kept another $100M in coins then fairly happy.

jacquesm3• 9 months ago

These kinds of deals were very much a la mode just prior to the .com crash. Companies would buy advertising, then the websites and ad agencies would buy their services and they'd spend it again on advertising. The end result is immense revenues without profits.

CPLX• 9 months ago

Exactly, everything old is new again. This was one of the drivers of the original dot-com bubble.

TZubiri2• 9 months ago

I'd gander a guess that there's nothing tech specific here and that fraudulent schemes are well defined for the SEC and commercial courts to take action if something is not kosher

datadrivenangel• 9 months ago

It's usually not actually fraud. It's the amazon reinvesting back into growth, except the unit economics don't work if everyone cashes out at the same time, and if anyone starts cashing out the growth stops and everyone cashes out before it's too late.

forgetfulness3• 9 months ago

Circular investments were also a compounding factor in the Japanese asset price bubble.

The practice was known as “zaitech”

zaitech - financial engineering
In 1984, Japan’s Ministry of Finance permitted companies to operate special accounts for their shareholdings, known as tokkin accounts. These accounts allowed companies to trade securities without paying capital gains tax on their profits.
At the same time, Japanese companies were allowed to access the Eurobond market in London. Companies issued warrant bonds, a combination of traditional corporate bonds with an option (the “warrant") to purchase shares in the company at a specified price before expiry. Since Japanese shares were rising, the warrants became more valuable, allowing companies to issue bonds with low-interest payments.
The companies, in turn, placed the money they raised into their tokkin accounts that invested in the stock market. Note the circularity: companies raised money by selling warrants that relied on increasing stock prices, which was used to buy more shares, thus increasing their gains from investing in the stock market.

https://www.capitalmind.in/insights/lost-decades-japan-1980s...

WOTERMEON• 9 months ago

And I guess no one of the people who were doing that paid but the community paid the price for this scam ?

zemvpferreira2• 9 months ago

There’s one key difference in my opinion: pre-.com deals were buying revenue with equity and nothing else. It was growth for growth’s sake. All that scale delivered mostly nothing.

OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go another way.

Arkhaine_kupo• 9 months ago

they’re using their equity to buy compute that is critical to improving their core technology

But we know that growth in the models is not exponential, its much closer to logarithmic. So they spend =equity to get >results.

The ad spend was a merry go round, this is a flywheel where the turning grinds its gears until its a smooth burr. The math of the rising stock prices only begins to make sense if there is a possible breakthrough that changes the flywheel into a rocket, but as it stands its running a lemonade stand where you reinvest profits into lemons that give out less juice

ignoramous• 9 months ago

There’s one key difference in my opinion

The other difference (besides Sam's deal making ability) is, willing investors: Nvidia's stock rally leaves it with a LOT of room to fund big bets right now. While in Oracle's case, they probably see GenAI as a way to go big in the Enterprise Cloud business.

moralestapia• 9 months ago

they’re using their equity to buy compute that is critical to improving their core technology

That's only like 1/8th of the flywheel, though.

api3• 9 months ago

The assumption is that they have a large moat.

If they don't then they're spending a ton of money to level up models and tech now, but others will eventually catch up and their margins will vanish.

This will be true if (as I believe) AI will plateau as we run out of training data. As this happens, CPU process improvements and increased competition in the AI chip / GPU space will make it progressively cheaper to train and run large models. Eventually the cost of making models equivalent in power to OpenAI's models drops geometrically to the point that many organizations can do it... maybe even eventually groups of individuals with crowdfunding.

OpenAI's current big spending is helping bootstrap this by creating huge demand for silicon, and that is deflationary in terms of the cost of compute. The more money gets dumped into making faster cheaper AI chips the cheaper it gets for someone else to train GPT-5+ competitors.

The question is whether there is a network effect moat similar to the strong network effect moats around OSes, social media, and platforms. I'm not convinced this will be the case with AI because AI is good at dealing with imprecision. Switching out OpenAI for Anthropic or Mistral or Google or an open model hosted on commodity cloud is potentially quite easy because you can just prompt the other model to behave the same way... assuming it's similar in power.

_heimdall5• 9 months ago

I think that, at best, that description boils down to Nvidia, Oracle, etc inventing fake wealth to build something and OpenAI building their own fake wealth by getting to use that new compute effectively for free.

There are physical products involved, but the situation otherwise feels very similar to ads prior to dotcom.

brazukadev3• 9 months ago

Yes, this time is different, trust big bro sama.

bayarearefugee• 9 months ago

critical to improving their core technology

It is at the very least highly debatable how much their core technology is improving from generation to generation despite the ballooning costs.

0xbadcafebee2• 9 months ago

Eventually when ChatGPT replaces Google Search, they will run ads, and so have that whole revenue stream. Still isn't enough money to buy the trillions worth of infrastructure they want, but it might be enough to keep the lights on.

SecretDreams• 9 months ago

I have some faith it could go another way.

I wonder how they felt during the .com era.

bgwalter• 9 months ago

Dotcom scams included "vendor financing", where telecom equipment providers invested in their customers who built infrastructure:

https://time.com/archive/6931645/how-the-once-luminous-lucen...

The customers bought real equipment that was claimed to be required for the "exponential growth" of the Internet. It is very much like building data centers.

runarberg2• 9 months ago

Wasn’t there also a bunch of telecom infrastructure created in the dot-com bubble, tangible products created, etc? Things like servers, telephone wires, underwater internet cables, tech-storefronts, internet satellites, etc.

some_guy_nobel• 9 months ago

OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go another way.

I'm commenting here in case a large crash occurs, to have a nice relic of the zeitgeist of the time.

orochimaaru• 9 months ago

Gita Gopinath (imf’s economist) sounded the alarm on the scale of this - https://www.afr.com/wealth/investing/the-crash-that-could-to...

whimsicalism9• 9 months ago

Stopped clock…

2020: https://www.youtube.com/watch?v=rpiZ0DkHeGE 2019: https://www.cadtm.org/spip.php?page=imprimer&id_article=1732...

boringg6• 9 months ago

The original "Tech" boom was an infrastructure boom by the telecoms funded by leveraged debt. It was an overbuild mismatch with the market timing. If you brought forward the timeline to when that infrastructure was used (late 2000s) you probably would never have had the crash.

This boom is a data center boom with AI being the software layer/driver. This one potentially has a lot longer to run even though everyone is freaking out now. If you believe the AI is rebuilding compute then this changes our compute paradigm in the future. As well as long as we don't get an over leveraged build out without revenue coming in the door. I think we are seeing a lot of revenue come in for certain applications.

The companies that are all smoke and mirrors built on chatGPT with little defensibility are probably the same as the ones you are referring to in the current era. Or the AI tooling companies.

To be clear circular deal flow is not a good look.

I can see the both sides of bull and bear at this moment.

cman1444• 9 months ago

One interesting aspect of this is that, with the exception of OpenAI, all of the companies leading this boom generate massive amounts of income from other arms of their buinesses. I think this is one reason for the potentially longer run, since they can subsidize AI CapEx with these cash flows for quite a while.

adaisadais• 9 months ago

I’ve been listening to “The Smartest Guys In The Room” (the definitive book on Enron and their scandal) and one of the ways Enron continued to grow and grow is by setting up a really complicated system of moving debt onto equities off of their balance sheet.

While it was sorta legal (at the time) it was not ethical and led to a massive collapse of the #1 company at the time.

Makes you wonder if AI is in such a bubble. (It is).

sergiotapia• 9 months ago

When the AI bubble pops, what will happen to the software engineering jobs?

miltonlost• 9 months ago

They'll have to come in and redo all the work that people put onto LLMs as actual engineering software. The number of features I've worked on that could have been done with normal computing practices but instead shoehorned in bad AI to make decisions/routing logic is too high.

kakacik• 9 months ago

If it pops, some ai engineers will need to start doing some normal work again, and rest of us... we just continue doing what we were doing for past decades.

Or maybe not, nobody knows the future any more then next guy in line.

afavour3• 9 months ago

There will be a bunch of layoffs and slowly they'll rehire back to pre-hysteria levels. I think the world is still going to need software engineers no matter what but companies will slow down on new features etc in an economic crunch.

brazukadev3• 9 months ago

free AI credits will be a thing of the past, "productivity" (real or not) will dive and real software engineering will become a moat again.

AndrewDucker• 9 months ago

The most interesting thing here is that it's now reached the NY Times.

trollbridge5• 9 months ago

“I’m not hearing any music.”

tim333• 9 months ago

The numbers are quite historic in size.

throwaway1063829• 9 months ago

Isn't paying a company to dig a hole who then pays you the same amount to fill said hole illegal?

baq• 9 months ago

Even worse in VAT countries where such carousels make you eligible for a tax return on technically zero added value

zetanor• 9 months ago

Not if it increases the GDP.

throwaway1063829• 9 months ago

Well, I've got great news then 92% of GDP growth in the first half of 2025 was hole filling companies paying hole digging companies to dig holes and in-kind pay them to fill them up again

what could possibly go wrong

TZubiri2• 9 months ago

Seems like a net loss due to transactional costs.

klustregrif2• 9 months ago

The increase in value of the companies outweighs the transactional costs and then you borrow against the value of the company and make new circular deals. It works really well for a very long time and then at some point it doesn’t. The trick of the game is to get big corps involved and key decision makers so that the government bails out everyone in the end.

throwaway1063829• 9 months ago

They are banking on:

* stock prices increasing more than the non-existent money being burnt

* they are now too big to fail - turn on the real money printers and feed it directly into their bank accounts so the Chinese/Russians/Iranians/Boogeymen don't kill us all

baggachipz2• 9 months ago

In a fair and just system with appropriate oversight, yes. So in this instance, no.

danans• 9 months ago

Only if you defraud investors in hole-digging corp and hole-filling corp by that by doing this you will be able to extract Unobtanium, which will make both companies 1000x profitable.

throwaway1063829• 9 months ago

This is just starting to sound more and more like "we're almost at AGI I promise bro just need one more round of investment bro please just one trillion more dollars please bro".

chermi4• 9 months ago

Yes, but what does that have to do with this situation? The hole served no purpose. The companies are using the GPUs.

brazukadev3• 9 months ago

99% of code I generated using genAI served no purpose at the end of the day

array_key_first• 9 months ago

They might be using the GPUs, but is that use providing real value? You can run a while loop and max out any processor.

And, well, nobody knows if it is providing real value. We know it's doing something and has some value WE attached to it. We don't know what the real value is, we're just speculating.

throwaway1063829• 9 months ago

I suppose we could use a few pennies to hire some security guards to protect the filled holes.

Now we’re creating jobs!

SubiculumCode• 9 months ago

Given that AI is a national security matter now, I'd expect the U.S.A to step in and rescue certain companies in the event of a crash. However, I'd give higher chances to NVIDIA than OpenAI. Weights are easily transferrable and the expertise is in the engineers, but ability to continue making advanced chips is not as easily transferred.

embedding-shape9• 9 months ago

Why is ML knowledge "in the engineers" while chip manufacturing apparently sits in the company/hardware/something else than the engineers/humans?

NBJack• 9 months ago

Read up a bit on the effort needed to get a fab going, and the yield rates. While engineers are crucial in the setup, the fab itself is not as 'fungible' as the employees involved.

I can spin up a strong ML team through hiring in probably 6-12 months with the right funding. Building a chip fab and getting it to a sensible yield would take 3-5 years, significantly more funding, strong supply lines, etc.

tonyarkles3• 9 months ago

First-order: because of the capex and lead times. If you grab a bunch of world-class ML folks and put them in a room together, they're going to be able to start producing world-class work together. If you grab a bunch of world-class chip designers in the same scenario but don't have world-class fabs for them to use, they're not going to be able to ship competitive designs.

bob1029• 9 months ago

One person can implement a transformer model from scratch in a weekend. Hardware is not the valuable part of machine learning. Data and how it is used are.

The "magic of AI" doesn't live inside an Nvidia GPU. There are billions of dollars of marketing being deployed to convince you it does. As soon as the market realizes that nvidia != magic AI box, the music should stop pretty quickly.

jeffwask• 9 months ago

The start-up costs of creating a new chip manufacture are significantly higher (you can't just SAAS your way into factories) and the chips themselves more subject to IP and patents owned by that company.

thesz• 9 months ago

Chip manufacturing is extremely time consuming, especially when we are talking about masks for lithography.

The rights on masks for chips and their parts (IPs) belong to companies.

And one definitely does not want these masks to be sold during bankruptcy process to (arbitrary) higher bidders.

jimbokun7• 9 months ago

Chip designs have strong IP protections.

AI models do not. Sure you can't just copy the exact floating point values without permission. But with enough capital you can train a model just as good, as the training and inference techniques are well known.

philipwhiuk4• 9 months ago

If they're too-important-to-fail they're too important not to be broken up or nationalised.

jimbokun7• 9 months ago

While that is a sensible opinion the 2008 crash showed that it is not the opinion of decision makers in the US.

whimsicalism9• 9 months ago

I’m curious if those of you calling for nationalization have worked for the government or a state-owned enterprise like Amtrak. People should witness the effects of long-term public sector ownership on productivity and effectiveness in a workplace.

will42742• 9 months ago

Fwiw, this is a facile argument. You make no attenpt to demonstrate that after major reorganization (breakup / nationalization) that the firm will continue to have the desirable attributes (innovation, efficincy, ability to build) that made them too important to fail.

lz400• 9 months ago

Even if/when the bubble pops, I don't think NVIDIA is even close to need rescuing or being in trouble. They might end being worth 2 trillion instead of 5 but they're still selling GPUs nobody else knows how to make that power one of the most important technologies in the world. Also, all their other divisions.

The .com bubble didn't stop the internet or e-commerce, they still won, revolutioned everything, etc. etc. Just because there's a bubble it doesn't mean AI won't be successful. It will be, almost for sure. We've all used it, it's truly useful and transformative. Let's not miss the forest for the trees.

gregoriol• 9 months ago

Will Sam Altman's fall be as legendary as Sam Bankman-Fried's?

baggachipz2• 9 months ago

Hopefully moreso

layer8• 9 months ago

SBF’s fall is almost forgotten already.

Hilift• 9 months ago

Most of the funds lost to SBF were recovered. And CPZ has a pardon. Crypto has evaporated about $2 trillion in assets since then.

kyruzic• 9 months ago

The funds in USD were recovered because bitcoins value is 5x higher than it was when he got arrested.

hiddencost• 9 months ago

I don't understand why you think it's OK to flagrantly violate financial laws for consumer protection, just because the bet got lucky?

h2zizzle7• 9 months ago

I'm assuming Altman wasn't screwing his CFO and letting her post to 4chan about it, so probably not that bad.

Lionga• 9 months ago

Altman was screwing / raping his sister so not quite sure who is worse.

rhetocj23• 9 months ago

Itll be worse. He is doing this for ego, not money from what I see.

vmg122• 9 months ago

Here is a charitable perspective on what's happening:

- Nvidia has too much cash because of massive profits and has nowhere to reinvest them internally.

- Nvidia instead invests in other companies that use their gpus by providing them deals that must be spent on nvidia products.

- This accelerates the growth of these companies, drives further lock in to nvidia's platform, and gives nvidia an equity stake in these companies.

- Since growth for these companies is accelerated, future revenue will be brought forward for nvidia and since these investments must be spent on nvidia gpus it drives further lock in to their platform.

- Nvidia also benefits from growth due to the equity they own.

This is all dependent on token economics being or becoming profitable. Everything seems to indicate that once the models are trained, they are extremely profitable and that training is the big money drain. If these models become massively profitable (or at least break even) then I don't see how this doesn't benefit Nvidia massively.

Eisenstein5• 9 months ago

Your conclusion about training being the cost factor that will eventually align with profitability in the inference phases relies on training new models not being an endless arms race.

vmg122• 9 months ago

If the inference is profitable and training new models is actually an endless arms race that's actually the best outcome for nvidia specifically.

belter2• 9 months ago

Everything seems to indicate that once the models are trained, they are extremely profitable

Some data would reinforce your case. Do you have it?

Here is my data point: "You Have No Idea How Screwed OpenAI Actually Is" - https://wlockett.medium.com/you-have-no-idea-how-screwed-ope...

trollbridge5• 9 months ago

Right. As far as I can tell, OpenAI, Grok, etc sell me tokens at a loss. But I am having a hard time figuring out how to turn tokens into money (i.e. increased productivity). I can justify $40-$200 per developer per month on tokens but not more than that.

simianwords2• 9 months ago

Inference cost has been going down for a while now. At what point do you think it will be profitable? When cost goes down by 2x? 5x?

bwfan1233• 9 months ago

This is behind a paywall. Is there a free link you can share ?

logicprog2• 9 months ago

I can't read your hyperbolically titled paywalled medium post, so idk if it has data I'm not aware of or is just rehashing the same stats about OpenAI & co currently losing money (mostly due to training and free users) but here's a non paywalled blog post that I personally found convincing: https://www.snellman.net/blog/archive/2025-06-02-llms-are-ch...

pols45• 9 months ago

Yup. Not just Nvidia. Just look at the quarterly results reported by Amazon, Google, Meta, Microsoft and Apple. Each one is reporting revenues never before seen in history. If you make 100 Billion a quarter you have to spend it on something.

These guys are running hyper optimized cash extraction mega machines. There is no comparison to previous bubbles, cause so no such companies ever existed in the past.

trollbridge5• 9 months ago

Odd how they are simultaneously having large layoffs even as reporting record revenues.

The question is where the profits are.

solarwindy• 9 months ago

100 billion a quarter is Alphabet, right? Given how much click fraud there is, and that every org and business under the sun is held to ransom to feature on the SERP for their own name even — it’s tempting to say Google’s become a private tax on everything.

skywhopper• 9 months ago

So many such profitable companies are the best possible evidence for the need for drastic antitrust intervention. The lack of competition and regulation is leading to a massive drain on every other sector.

tigershark• 9 months ago

How much more was worth USD at the beginning of the year?

dingaling• 9 months ago

What's shocking is the gulf between those companies and corporate 'normality'.

Eastern Airways, a UK airline, has just gone bust due to accumulated debts of £26 million. That's not even a rounding error for Google, yet was enough to put a 47-year-old company into bankruptcy and its staff out of work.

I think the only historical parallel to this disparity was the era of the East India Company.

moogly2• 9 months ago

Nvidia has too much cash because of massive profits and has nowhere to reinvest them internally.

Here's an idea: they could make actual GPUs used for games affordable again, and not have Jensen Huang lie on stage about their performance to justify their astronomical prices. Sure, companies might want to buy them for ML/AI and crash the market again but I'm sure a company of their caliber could solve that if they _really_ wanted to.

HDThoreaun2• 9 months ago

Why would they want to do that? The only sector that matter to nvidia is datacenter, its where 90%+ of their profits are. Making their consumer sector even less profitable just seems like a waste of time

Lord-Jobo• 9 months ago

I also just don’t understand, as someone with no business experience, how they aren’t just pouring all of that money into enhancing their production capacity. That’s very clearly their bottleneck here.

Yes, I’m certain they are spending an astronomical amount on that already, but why not more? Surely paying more money for construction of more facilities still nets gain even if you run into diminishing returns?

Instead they set up this whacko tax laundering scheme? Just seems like more corporate pocket filling to me, an idiot with no business knowledge.

rangestransform2• 9 months ago

Consumers should already be glad that R&D for their products is being subsidized by OpenAI and Google

MangoToupe2• 9 months ago

I'm just confused why people think token-based computing is going to be in such demand in the future. It's such a tiny slice of problems worth solving.

thorncorona• 9 months ago

It's like how every big co these days is ML. It will transition to LLMs as well.

Just give it a few years.

PeterStuer• 9 months ago

It is'nt just nvidia though.

tqian• 9 months ago

If models are profitable once trained, isn't it weird that chatgpt and Claude have $200 tiers that still have usage limits?

mikewarot• 9 months ago

This is all dependent on token economics being or becoming profitable

What is the actual value of a token? If it were generated by a human expert in a given field? This should set an upper limit for now.

creer5• 9 months ago

- Nvidia also benefits from growth due to the equity they own.

aka this might be nvidia's next pivot. Contrary to gaming cards, the AI GPUs are productive assets. If nvidia feels that they will be very productive, then it makes sense that they invest broadly in the companies that are likely to make these profits. To share in the rewards while selling more GPUs.

gmoore• 9 months ago

If you want to dig deeper on this - check out https://www.wheresyoured.at/

Jonovono• 9 months ago

His podcast Better Offline is a treat too.

crazygringo7• 9 months ago

This is such a strange article -- there's nothing particularly unusual going on here.

The first example basically stands in for all of them -- Microsoft invests $13B in OpenAI, and OpenAI spends $13B on Azure. This is literally just OpenAI purchasing Microsoft cloud usage with OpenAI's stock rather than its cash. There is nothing unusual, illicit, or deceptive about this. This is entirely normal. You can finance your spending through debt or equity. They're financing through equity, as most startups do, and they presumably get a better deal (better rates, more guaranteed access) via Microsoft than via other random investors and then buying the cloud compute retail from Microsoft.

This isn't deceiving any investors. This is all out in the open. And it's entirely normal business practice. Nothing of this is an indicator of a bubble or anything.

Or take the deal with Oracle -- Oracle is building data centers for OpenAI, with the guarantee that OpenAI will use them. That's just... a regular business deal. What is even newsworthy about this? NYT thinks these are "circular" deals, but by this logic every deal is a "circular" deal, because both sides benefit. This is just... normal capitalism.

philipwhiuk4• 9 months ago

Microsoft invests $13B in OpenAI, and OpenAI spends $13B on Azure.

This isn't deceiving any investors.

It's Microsoft increasing its revenue by selling its stock.

crazygringo7• 9 months ago

Microsoft isn't selling any stock. It's using its cash.

And an increase in revenue isn't the point. Microsoft isn't doing this to try to bump its short-term stock price or anything -- investors know where revenue is coming from. Microsoft is doing it because it thinks OpenAI is a good investment and wants to make money with that investment and have greater control.

jpollock• 9 months ago

The last time this hit the news, it was the dotcom bubble, and Nortel was in a similar position with startups, taking equity for equipment.

crazygringo7• 9 months ago

No, that's not the last time this hit the news. This happens literally all the time. Again, this is just business as usual. It's not specific to AI, it's not specific to tech, and it's nothing to do with bubbles.

Eisenstein5• 9 months ago

The bubble part is that nvidia is getting revenue from people investing money in their hardware in order to sell something that has not yet been shown to be profitable. If it turns out no one can make enough money selling AI generated data to justify the costs spent on the compute needed to generate it at the current rate, then what nvidia are selling becomes much less valuable, and the whole thing collapses. We haven't figured out yet whether or not that will be the case.

crazygringo7• 9 months ago

But that has nothing to do with the arrangement of deals here.

If it's a bubble, then it will pop. If it's not a bubble, then all these investments will turn out to be great. But that's a different question.

The point is, all these deals happen all the time. They're not some kind of sign of a bubble. They happen just as much in non-bubbles. They're just capitalism working as usual.

delis-thumbs-7e8• 9 months ago

I remember the same argument being used before the 2008 crash.

Point is that all of this companies need to start making real profits and pretty damn big ones, otherwise all of this will collapse. Problem is that unless Altman has some super-intelligent super-AI hidden in his closet, it is very unlikely that it will.

And whose gonna take the bill when it falls? Let me guess… Where have I seen this before…?

crazygringo7• 9 months ago

That's fine, but that's a separate conversation. Maybe this is a bubble, maybe it isn't.

My point is that the way it's all being financed is just regular financing. This article is trying to present the way it's being funded as novel, as "complex and circular", when it's not. This is how funding and investment works 365 days a year in all sectors. Nothing about the funding arrangements is a bubble indicator.

So this is a strange article from the NYT, because it's trying to present normal everyday financing deals as uniquely "complex and circular".

matwood• 9 months ago

Point is that all of this companies need to start making real profits and pretty damn big ones

MS, Meta, Google, Apple, Nvidia make enormous profits. I think part of this AI push we're seeing is that all of these companies have so much money they don't know how to spend it all. Meta is a great case where they bounced from blowing excess cash on the metaverse and now to AI.

gdulli• 9 months ago

Sometimes additional context can take the same action that looks harmless in a vacuum and turn it into a bad idea or even a crime!

crazygringo7• 9 months ago

Then it would be great to have that context that shows criminality. Because that's an extraordinary claim you're suggesting, which is going to require actual evidence.

As for "bad ideas", businesses make tons of decisions every day that turn out to be good or bad in hindsight. So again, more specifics are needed here.

So what exactly are you suggesting? What context do you think the NYT chose to omit, and why would they omit it if it was meaningful?

methodical• 9 months ago

Circularly passing around tens to hundreds of billions of dollars for things which don't exist and may never exist to fund a technology that hasn't A. lived up to the hype they've marketed and B. proven any strategy to breakeven is fundamentally not that much different than the way in which Enron strategically boasted their revenue numbers by passing the money between shell corporations that their CFO created.

The main difference of course being that these are actual companies as opposed to just entities intently designed to inflate the apparent financials. While it seems like that difference means this situation is perfectly fine as compared with the fraudulent case of Enron, the net effect is still the same; these companies are posting crazy quarter over quarter revenue growth, sending their stock prices to crazy highs and P/E multiples, while the insiders are cashing out to the tunes of hundreds of millions of dollars.

I don't really see how exactly you're trying to make the argument that it may or may not be a bubble, it objectively meets the definition of a bubble in the traditional economic sense (when an asset's market price surges significantly above its intrinsic value, driven by speculative behavior rather than fundamental factors). These companies are massively overvalued on the speculative value of AI, despite AI having not yet shown much economic viability for actual profit (not just revenue).

Worse yet, it's not just one company with inflated numbers, it's pretty much the entire top end of the market. To compare it to the dot com bubble wouldn't be a stretch, it'd basically be apples to apples as far as I see it.

9cb14c1ec0• 9 months ago

Complex and circular deals lead to the downfall of Enron. Just saying...

throwaway1063829• 9 months ago

Speedrunning to "too big to fail". Turn on the infinite money printers and feed them directly into Sam Altman's bank account or the Chinese/Russians/Iranians/Boogeymen will destroy us all.

seydor• 9 months ago

They are fueling rich family office money into the bank accounts of their personell. Not bad not bad.

nocoolnametom• 9 months ago

The fact that it is private equity that is going to evaporate when the bubble bursts is the only silver lining I can see. However, my natual cynicism makes me bet they'll spend whatever they've got left over on their pet politicians to use government (ie, public funding) to bail themselves back out.

jmyeet• 9 months ago

Many here now didn't live through the dot-com bubble as an adult so can't really appreciate what it was like. The hype was something hard to describe. Financial analysts and journalists struggled to come up with ways to describe the health of these "companies". My favorite was what revenue multiple companies would trade it.

But the major takeaway was that almost none of these companies were real businesses. This is why I laughed at dot-com comparisons in the 2010s around the tech giants because Apple, Google, Microsoft, etc were money-printing machines on a scale we have trouble comprehending. That doesn't make them immune to economic struggles. Ad spending with Google will rise and fall with the economy.

OpenAI has a paper valuation in the hundreds of billions of dollars now and no prospect of a revenue model that will justify that for many, many years.

Currently, the hardware is a barrier to entry but that won't last. It has parallels in the dot-com era too when servers were expensive. The cost of training LLMs is (at least) halving every year. We're probably reaching the limits of what these transformers can do and we'll need another big breakthrough to improve.

OpenAI's moat is tenuous. Their value is in the model they don't release. But DeepSeek is a warning shot that it will be in somebody's geopolitical interest, probably China's, to prevent a US tech monopoly on AI.

If you look at these AI companies, so many of them are basically scams. I saw a video about a household humanoid robot that was, surprise surprise, just someone in a VR suit. Many cities have delivery drones now but somebody is remotely driving them.

I saw somebody float the theory that the super-profitable big tech companies are engaging in layoffs not because they don't need people but to pay for the GPUs. It's an interesting idea. A lot of these NVidia deals are just moving money around where NVidia comes out on top with a bunch of equity in these companies should they become trillion dollar companies.

Oh and take out data center building from the US economy and we're in recession. I do think this is a bubble and it will burst sooner rather than later.

nova22033• 9 months ago

https://www.theregister.com/2025/10/29/microsoft_earnings_q1...

Microsoft seemingly just revealed that OpenAI lost $11.5B last quarter

guywithahat3• 9 months ago

It's incredible how Tesla used to lose a few hundred million a year and analysis shows would freak out claiming they'd never be profitable. Now Rivian can lose 5 billion a year and I don't hear anything about it, and OpenAI can lose 11 billion in a quarter and Microsoft still backs them.

I do think this is going to be a deeply profitable industry, but this feels a little like the WeWork CEO flying couches to offices in private jets

randomNumber7• 9 months ago

The winner takes it all, so it is reasonable to bet big to be the one.

OtherShrezzing• 9 months ago

and OpenAI can lose 11 billion in a quarter and Microsoft still backs them.

For Microsoft, and the other hyperscalers supporting OpenAI, they're all absolutely dependent on OpenAI's success. They can realistically survive through the difficult times, if the bubble bursts because of a minor player - for example if Coreweave or Mistral shuts down. But if the bubble bursts because the most visible symbol of AI's future collapses, the value-destruction for Microsoft's shareholders will be 100x larger than OpenAI's quarterly losses. The question for Microsoft is literally as fundamental as "do we want to wipe $1tn off our market cap, or eat $11bn losses per quarter for a few years?" and the answer is pretty straightforward.

Altman has played an absolute blinder by making the success of his company a near-existential issue for several of the largest companies to have ever existed.

accrual2• 9 months ago

like the WeWork CEO flying couches to offices in private jets

I found there was more than just couches on the WeWork private jets:

https://www.inverse.com/input/tech/weworks-adam-neumann-got-...

raincole• 9 months ago

And did people listen to those "analyses" and dump Tesla, or its stock kept skyrocketing?

bunderbunder• 9 months ago

It reminds me a lot of the late 1990s.

We had an impressive new technology (the Web), and everyone could see it was going to change the world, which fueled a huge gold rush that turned into a speculative bubble. And yes, ultimately the Web did change the world and a lot of people made a lot of money off of it. But that largely happened later, after the bubble burst, and in ways that people didn't quite anticipate. Many of the companies people were making big bets on at the time are now fertile fodder for YouTube video essays on spectacular corporate failures, and many of the ones that are dominant now were either non-existent or had very little mindshare back in the late '90s.

For example, the same year the .com bubble burst, Google was a small new startup that failed to sell their search engine to Excite, one of the major Web portal sites at the time. Excite turned them down because they thought $750,000 was too high a price. 2 years later, after the dust had started to settle, Excite was bankrupt and Google was Google.

And things today sure do strike me as being very similar to things 25, 30 years ago. We've got an exciting new technology, we've got lots of hype and exuberant investment, we've got one side saying we're in a speculative bubble, and the other side saying no this technology is the real deal. And neither side really wants to listen to the more sober voices pointing out that both these things have been true at the same time many times in the past, so maybe it's possible for them to both be true at the same time in the present, too. And, as always, the people who are most confident in their ability to predict the future ultimately prove to be no more clairvoyant than the rest of us.

lokar3• 9 months ago

Very few industries are “deeply profitable” absent the illegal abuse of monopoly power

dmoy• 9 months ago

Now Rivian can lose 5 billion a year and I don't hear anything about it, and OpenAI can lose 11 billion in a quarter and Microsoft

Rivian stock is down 90%, and I fairly regularly read financial news about it having bad earnings, stock going even lower, worst-in-industry reliability, etc etc.

I don't know why you don't hear about it, but it might be because it's already looking dead in the water so there's no additional news juice to squeeze out of it.

Schiendelman• 9 months ago

Rivian lost something like $5B in 2024, but they're on track to only lose $2.25B in 2025. That trend line is clear. In 2026 they release a much lower cost model, and a lot of that loss has been development of that model. They probably won't achieve profitability in 2026, but if they get their loss down to $1B in 2026, in 2027 we'll likely see them go net positive.

bigwheels• 9 months ago

this feels a little like the WeWork CEO flying couches to offices in private jets

Fascinating! I unearthed the TL;DR for anyone else interested:

* WeWork purchased a $60 million Gulfstream G650ER private jet for Neumann's use.

* The G650ER was customized with two bedrooms and a conference table.

* Neumann used the jet extensively for global travel, meetings, and family trips.

* The jet was also used to transport items like a "sizable chunk" of marijuana in a cereal box, which might be worse and more negligent than couches.

Sources:

https://www.vanityfair.com/hollywood/2022/03/adam-neumann-re...

https://nypost.com/2021/07/17/the-shocking-ways-weworks-ex-c...

alfalfasprout• 9 months ago

Investors are trying to bet on OpenAI being the first to replace all human skilled labor. Of course, this is foolish for a few reasons:

1. Performance of AI tools improving but marginally so in practice 2. If human labor was replaced, it's the start of global societal collapse so any winnings would be moot.

butlike• 9 months ago

That was back in the mid 2010s right? Companies had yet to reach 1T valuation. 5bil against 1T is a drop in the bucket

boringg6• 9 months ago

You can't honestly be comparing a shitty real estate play like WeWork to the real functional benefits people get out of ChatGPT.

ChatGPT was mind blowing when you first used it. WeWork is a real estate play fronted by a self aggrandizing self dealing CEO.

FloorEgg• 9 months ago

Edit: the following is incorrect. I didn't know that the change to IRC § 174 was cancelled this summer.

------

What's crazy is that with the 2021 changes to IRC § 174 most software r&d spending is considered capital investment and can't be immediately expensed. Has to be amortized over 5 years.

I don't know how that 11.5B number was derived, but I would wager that the net loss on income statement is a lot lower than the net negative cash flow on cash flow statement.

If that 11.5B is net profit/loss, then whatever the portion of the expense part of the calculation that's software R&D could be 5x larger if it weren't for the new amortization rule.

gausswho• 9 months ago

Wasn't that change cancelled this summer?

boringg6• 9 months ago

Real question -- how else is OpenAI supposed to fund itself? It has capital requirements that the most moneyed business companies can't provide. So it has to come up with ways to get access to money while de-risking the terms. Not saying the circularity works but I don't know how else you raise at their scale.

This money is well beyond VC capability.

Either this lets them build to net positive without dying from painful financing terms or they explode spectacularly. Their rate of adoption it seems to be the former.

jgalt2123• 9 months ago

If you can only continue to fund a venture using scam-like structures, then maybe it's time to re-evaluate what the goals and value prop of the unfundable venture is.

ASinclair• 9 months ago

They could try selling their services above cost.

anonymousiam2• 9 months ago

Sort of like Bitcoin...

moelf• 9 months ago

megaloblasto• 9 months ago

Everyone loves to compare AI with the dot com bubble. My question is, were there any policies put in place after the dot com bubble to mitigate a similar crash? Or did we learn nothing?

coldfireza2• 9 months ago

it's a bubble

coldfireza2• 9 months ago

It's a bubble

rchaud• 9 months ago

OpenAI is raising funding based on its own forecasts for AI demand growth, and sending most of it to Oracle, MSFT, Nvidia as well as paying insiders enormous salaries.

There are some interesting parallels here with the business model described in the book Confessions of an Economic Hitman. Developing countries take out huge loans from US lenders to build an electric grid, based on inflated forecasts from US consultancies they hired. The countries take on the debt, but the money mostly bypasses them and lands in the pockets of US engineering firms doing the construction, and government insiders taking kickbacks for greasing the wheels.

When the forecasted growth in industrial production fails to materialize, the countries are unable to repay the debt and have no option but to offer the US access to their resources, ports and votes in the UN.

What happens when OpenAI's forecasts of gargantuan growth fail to materialize and they're unable to sell more stock to pay off lenders? Does Uncle Sam step in with a bailout for "national security" reasons?

skeeter20202• 9 months ago

> figure out how to innovate on the financial model

Does it feel rather Orwellian that the original geeks now seem to be the same people who - forget about claiming technological innovation of as their own - completely discount it and apparently the important thing is now the creativity in funding an enterprise? We don't hear about the breakthroughs from the technologists, but the funding announcements from th investors and CEOs. It's not about the benefits of the technology, but how they're going to pay for it. Seems like a wildly perverse version of wag the dog...

whimsicalism9• 9 months ago

this is all a function of the media reporting, the change in ‘nerd culture’ has been vastly overreported.

these companies are staffed by spectrum-y nerds that we are being desperately propagandized into thinking are actually frat ‘bros’.

programjames• 9 months ago

No, they aren't. Locally, the person with the most esoteric knowledge is probably a weird nerd. It's mostly an accident that they chose to invest time in things typically associated with smarts. But globally, the best wizards got there by making it their profession. So maybe at your middling university, the people who could land a job at a frontier lab were nerdy wannabe frats, but at decent universities like MIT or Tsinghua, they're usually just better in every aspect of their lives. E.g. MIT has "math olympiad fraternities" all the cool kids join.

yahoozoo• 9 months ago

Someone named Altman focusing on the money? Color me surprised.

blibble• 9 months ago

seems like it's like a mix of enron, subprime mortgages, and .com boom all in one

JohnMakin• 9 months ago

"Circular deals" feels like an awfully cute way to say "fraud"

random97498322• 9 months ago

A lose lose situation for most people. Either the stock market crashes or AI progress meets expectations in the coming years and people start losing jobs.

barbazoo• 9 months ago

So real estate it is after all?!

jwpapi• 9 months ago

When I was 16 I started working at a startup buying and reselling used electronics.

There were like 5 competitors all trying to become the winner takes it all. Afaik after 10 years some closed, restructured but most of them burnt a lot of money. One lets call him indie dev made a lot of money building a simple comparison platform and getting 10-20% on all deals.

This is n=1, but I think it still made me really averse to raising money.

guluarte• 9 months ago

this seems like a fake circular economy, ms invests in openai which uses the money in azure, amazon invests in anthropic which pays aws for hardware and infra, nvidia invests in openai which uses the money to buy nvidia hardware, etc

sigbottle• 9 months ago

Weird angle, but isn't "believing there will be a crash" sort of framing it as if this were still normal market dynamics?

OpenAI and AI in general has posed itself as an existential threat and tightly integrated itself (how well? let's argue later) with so many facts of society, especially government, that like, realistically there just can't be a crash, no?

Or is this too doomsday / conspiratorial?

I just find it weird that we're framing it as crash/not crash when it seems pretty clear to me they really genuinely believe in AGI, and if you can get basically all facets of society to buy in... well, airlines don't "crash" anymore, do they?

1899-12-30• 9 months ago

A crash in the stock market doesn't necessarily mean a crash in the real market, The AI bubble burst being dot com style vs a gfc debacle depends on how much critical financial infrastructure is at risk during the debt deleveraging. If you look at the gdp growth during those two periods, the dot com era was a mild stagnation compared to the gfc's actual gdp decline.

camdenreslink4• 9 months ago

If OpenAI were to shut down today, would anything in society really change? It seems all valuations are based on future integration into society and our daily lives. I don't think it has really happened yet.

mv4• 9 months ago

How's this legal? Smaller businesses get in trouble for creative deals leading to inflated earnings.

boringg6• 9 months ago

As an aside does anyone get the feeling that NYT is also training its fire on all California tech companies these days? I know that NYT really doesn't like California (always hasn't - from restaurants to culture to business) but curious if other people see that as well?

cs702• 9 months ago

Here's a diagram from Morgan Stanley showing OpenAI's hair-ball of deals:

https://x.com/akcakmak/status/1976204708655079840/photo/1

It really is a hair-ball: purchase-sale relationships, revenue share agreements, investments, vendor loans, and repurchase agreements, etc.

trinsic2• 9 months ago

GamersNexus Consumer Advocacy Channel did a piece on this [0]

[0] https://www.youtube.com/watch?v=h3JfOxx6Hh4

DenisM6• 9 months ago

A couple of thoughts on the big picture:

* Rise of AI is one of the biggest “transfers” of IP-generated wealth.

* It is also a dramatic increase in the “software is eating the world” trend, or at least an anticipation of such. It kinda turned from everyone dragging their feet through software andoptin over the course of 30 years into a massive stampede.

ingigauti• 9 months ago

Reminds me of Iceland pre 2008 - lot of circular & complex deals - but now it's different

ekjhgkejhgk• 9 months ago

Sam Conman.

ungreased0675• 9 months ago

Complex and circular deals sounds suspiciously close to fraud.

How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

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