The web of financial connections surrounding OpenAI just got even denser — and for some market watchers, that’s an ominous sign. OpenAI recently struck a new deal with AMD, days after Nvidia announced a $100 billion investment in the AI firm. Meanwhile, Oracle has its own $300 billion deal with OpenAI, and Microsoft and Google are also financially tied to the company.
To skeptics, it looks like a small circle of tech giants trading money and services back and forth — a cycle reminiscent of the late-90s dot-com bubble.
AI PARTNERSHIPS MIRROR DOT-COM ERA FINANCING
Under Monday’s deal, AMD’s stock jumped 23%, with the company issuing OpenAI warrants for up to 160 million shares, making OpenAI a significant shareholder. This “vendor financing” model — where suppliers fund their own customers — echoes the overleveraged arrangements that once fueled the dot-com frenzy.
Back then, companies like Cisco, Nortel, and Lucent extended generous financing to customers to keep sales booming, only to face collapse when demand evaporated. Analysts warn that similar circular financing could now be inflating AI valuations.
As JonesTrading’s Mike O’Rourke put it, “The lessons of the dot-com bubble are all but forgotten, but they echo in eternity.” Lucent, then a “picks and shovels” play much like Nvidia today, eventually went bankrupt after the bubble burst.
EXPERTS WARN OF THE “BIGGEST AND MOST DANGEROUS” BUBBLE
While Morgan Stanley analysts say today’s tech giants are far stronger financially than those of the early 2000s, concerns remain. The problem, some argue, isn’t just the financing — it’s the underlying product.
Generative AI tools powered by large language models (LLMs) have yet to deliver on their transformative promises. A recent MIT survey found that 95% of companies reported zero return on their AI investments. Meanwhile, AI-generated “workslop” — meaningless or error-ridden content — continues to plague industries.
Economist Julien Garran of MacroStrategy Partnership sounded the loudest alarm, calling the AI boom “the biggest and most dangerous bubble the world has ever seen.” He estimates that the misallocation of capital in AI is 17 times larger than the dot-com bubble and four times bigger than the 2008 real estate crash, driven largely by “round-tripping” — money cycling between the same firms to sustain an illusion of demand.
Whether history repeats itself or not, the tangled web of AI financing is drawing uncomfortable comparisons to one of the market’s most infamous collapses.
