Circular AI financing: Nvidia's mega-deals reignite bubble fears

The AI financing loop is back under the microscope. Nvidia's cascade of mega-deals with customers it also invests in has reignited the debate over so-called circular financing, and whether the AI capex boom is being propped up by money moving in circles rather than genuine end demand.

What circular financing actually means

At its simplest, circular financing describes a deal structure in which a chipmaker or hyperscaler takes an equity stake in, or extends credit to, an AI lab or neocloud provider, and that same company then commits to multi-year purchases of chips or computing power from the firm that just funded it. The money moves in a loop: invest, then buy back, then invest again.

Circular financing is not illegal, and it is not new. Wall Street has seen versions of this for decades, including vendor financing during the telecom boom in the late 1990s, when equipment makers lent money to buyers so those buyers could afford to buy more equipment. What is new, however, is the unprecedented scale of these deals in the AI sector.

Nvidia at the center

Recent announcements from Nvidia regarding massive deals, including a reported $500 billion agreement with SK Hynix, have reignited concerns about circular financing in the artificial intelligence sector. On top of that, a prospective deal under discussion with OpenAI would help the ChatGPT creator lease a $500 billion, 10-gigawatt hub that a SoftBank Group subsidiary is developing in Ohio, and Nvidia may provide a guarantee of as much as $250 billion to the AI lab and is discussing financing OpenAI purchases worth $350 billion.

Nvidia, which is making oodles of cash, is using its financial heft to buoy its customers, who are losing oodles of cash. Nvidia also has invested in data center companies including IREN Ltd., CoreWeave Inc. and Nebius Group NV.

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Why the bears are worried

The risk with these “circular” deals is that they can create skewed incentives that may lead to bad decision making and magnify losses if demand for AI fails to match today's lofty expectations. The Bank for International Settlements used its 2026 Annual Report to name this dynamic, alongside a potential AI capex bust and sovereign debt fragility, as one of the three biggest risks to global financial stability. That is a notable escalation from what had largely been an analyst-community concern to a central-bank one.

“Nvidia guaranteeing more of OpenAI's data center debt deepens vendor financing that's already under scrutiny,” said Billy Leung, an investment strategist at Global X Management. “It's as much a reminder of funding strain in the AI buildout as it is a demand signal.”

The bull rebuttal

To supporters of the flurry of AI mega-investments, the “circularity” critique misses a basic point: Building AI is extraordinarily expensive, and the most advanced chips are still hard to get. In that kind of market, companies don't just place orders. They lock in supply by pairing long-term buying commitments with financing.

Asset manager Janus Henderson said the wave of AI deals is more like a “virtuous circle” that helps line up suppliers, builders and customers to meet the exploding demand for computing power.

Options market and stocks to watch

Watch NVDA as the epicenter of the debate, with any headline about backing OpenAI or hyperscaler customers likely to move the tape. Recall that Nvidia shares tumbled 4.5% in late morning trading on prior circular deal headlines.

Watch ORCL given its role in Stargate and rising leverage tied to AI capex, plus CRWV and NBIS as neocloud names that Nvidia has invested in and whose credit profiles depend on continued hyperscaler demand.

Also watch MSFT given the OpenAI compute relationship, and META for exposure to multi-billion dollar neocloud commitments that keep this financing loop spinning. For more, see other news.

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