OpenAI’s circular deals are emblematic of an AI bubble

Around a month ago, I wrote that the financial community is sounding alarm bells on speculative artificial intelligence (AI) growth.

- SIDDHARTH PAI

On 3 November, OpenAI inked a $38 billion agreement with Amazon Web Services, committing to run a vast portion of its workloads on AWS infrastructure over the next seven years. To the casual observer, this looks like another straightforward cloud services contract.

In reality, it has become increasingly common in the AI ecosystem to have circular revenue loops that bind AI platforms to their suppliers in ways that blur the line between investment, infrastructure and demand forecasting. The New York Times counts seven such transactions at Open AI in a recent article (shorturl.at/ucOqY)

The structure is simple but potent. OpenAI commits billions to purchasing compute capacity, chips, or data centre access. The suppliers build or lease out the infrastructure. Often, these same companies also benefit from equity arrangements, profit shares, or long-term purchase guarantees that ensure they profit not just from supplying OpenAI but from its continued expansion. In some cases, they even invest in OpenAI, closing the loop entirely.

In the chip/compute arena, the Nvidia relationship is emblematic. It supplies the AI chips OpenAI depends on. Simultaneously, Nvidia is investing capital into OpenAI and its affiliates. Thus, OpenAI spends vast sums on Nvidia's chips while Nvidia positions itself to benefit from OpenAI's valuation and growth. Money flows in a tight circle, and the supplier becomes a stakeholder.