Yesterday OpenAI and Broadcom announced a collaboration agreement that will see both companies design and deploy 10 GW of custom AI chips over the course of four years. It’s a new episode of that unusual strategy that OpenAI has carried out and which is summarized in an increasingly disturbing concept: that of circular financing.
Multimillion-dollar agreements. In recent weeks we have seen how OpenAI has reached new agreements worth billions of dollars with large companies in the semiconductor sector. Thus, we have:
Circular financing. All these advertisements respond to a unique circular financing strategy in which chip companies (the suppliers) not only sell their products to an AI startup (customer), but also invest capital in that startup, which in turn uses that capital to buy more products from its investor. In reality, the supplier “does not invest” as such, because that money ends up going back into purchases of its products and services. It is in fact something similar to what OpenAI did with Microsoft when the latter invested $13 billion in it. Rather than investing them, it allowed him to use a kind of subscription for that amount to use his cloud, Azure, and its computing resources. It’s a win-win for some and for others.
OpenAI wins. These agreements allow OpenAI to have guaranteed access to computing, something you need like eating. The startup spends billions a year and still not profitablebut thanks to this strategy he obtains a massive flow of capital. In the case of Broadcom, it also manages to collaborate in the design of customized chips for minimize future dependence on other partners (such as NVIDIA or AMD) and thus enjoy a lower total cost of ownership in the long term. And by signing with three different semiconductor suppliers, it encourages competition and improves its bargaining power. Bright.
Suppliers win. The circular strategy also benefits NVIDIA, AMD and Broadcom. All of them gain a customer with almost unlimited demand, and can register immediate income from the sale of chips while the cost of the investment is amortized over time. NVIDIA also manages to maintain its dominant position, while AMD and Broadcom manage to expand in this market. If there are also actions involved, all of them are revalued and participating in each other is another element of interest in these financial operations. They reinforce and grow larger among themselves, and while they weaken all the others.
A gigantic house of cards. But compared to that strategy, reality. And the reality is that this circular flow of capital is creating artificial demand in which the supplier pays itself. The systemic risk is enormous: if OpenAI fails or AI growth slows, the domino effect can significantly affect these vendors and their investors. We are facing a huge (and fragile) house of cards that, if it collapses, will have equally enormous consequences. The AI bubbleif it really exists, continues to grow and grow.
Total uncertainty. There is also absolute uncertainty about the promise of AI: will we really use it as much as these companies think we will? Will OpenAI be able to deliver on its promise and turn a profit in 2030? It is impossible to know. Finally, another problem: these circular agreements make these companies larger, but they make the entry of new competitors in both markets increasingly complicated.
There are winners, but also losers. While all this is happening and the shares of these companies are skyrocketing, the reality is that there are also losers. The retail investor is blind to these events—and suspicions about cases of insider trading They are inevitable. And of course when talking about competition we are not talking about new competitors, but also current ones. Anthropic or Perplexity, with already established businesses, now finds it more difficult to compete. Google, Microsoft or Meta have plenty of infrastructure and economic resources, but they are still seeing how OpenAI is getting bigger and bigger without being able to prevent it. If successful, OpenAI may end up being above all of them, because it seeks the same thing that every company seeks even if it does not admit it: become a monopoly.
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