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Circular Financing in the AI sector

The observation regarding "circular financing" in the AI sector has become a central theme of market analysis as we move through 2026. Critics, including outlets like ZeroHedge and various short-sellers, argue that this creates a "reflexive loop" that can mask true market demand and artificially inflate valuations.

Here is a breakdown of how this structure works and why it is drawing comparisons to the dot-com bubble.

1. The Mechanics of the "Money Loop"
The circularity typically involves three main tiers of players: Chipmakers (Nvidia), Cloud Hyperscalers (Microsoft, Oracle, AWS, Google), and 'AI Startups (OpenAI, Anthropic, xAI).

Step A: A chipmaker (e.g., Nvidia) or a cloud giant (e.g., Microsoft) invests billions into an AI startup (e.g., OpenAI).
Step B: The startup uses that capital to sign massive, multi-year contracts for compute power from the cloud provider.
Step C: The cloud provider, seeing a surge in "guaranteed" demand, uses its cash flow to buy more high-end GPUs from the chipmaker.
The Result: Revenue is recognized across the board. The chipmaker records a sale, the cloud provider records a booking, and the startup records a high valuation—all triggered by the initial "investment" rather than external customer revenue.

2. The Speculative Bubble Comparison