Reports that Nvidia is in talks to give financial guarantees of almost $250 billion (€217 billion) to OpenAI for a massive data center project show two sides of the artificial intelligence boom. On one level, it shows the monumental scale of AI's financial muscle and potential. On another, it shows the risks of a so-called "circular" financing system at the core of the AI ecosystem.
If one domino falls, would others fall with it? "The interconnected nature of the AI ecosystem is real," Gary Tan, portfolio manager at Allspring Global Investments, told DW. "But near term risks are mitigated by the strong balance sheets, cash flows and credit quality of the major providers funding the buildout." Jan Frederik Slijkerman, a tech sector strategist at ING, agrees that the exceptionally strong financial positions of big tech companies such as Nvidia, Microsoft, Amazon and Alphabet (Google parent company) mitigate against the risks.
He says the degree of collaboration regarding AI is "fascinating" but does not see a "a systemic industry-wide risk arising from the observed interdependencies". Circular financing typically works as follows: A company pays another for a product or deal, or invests in that company or provides a loan or lease. Then that company purchases the first company's products or services.
It can be seen across the spectrum of AI deals. For many, the moment the AI revolution began was when ChatGPT, developed by OpenAI, was launched in November 2022. The chatbot's capabilities brought AI into the mainstream.
Its success quickly attracted a massive $10 billion investment from software giant Microsoft, enabling it to develop more powerful models. In return, OpenAI became a key customer for Microsoft's cloud services, which it is investing ever more heavily into as the AI boom gathers momentum. It set the template for future deals.
Amazon and Alphabet began investing billions into OpenAI's rival Anthropic, which has built the hugely successful Claude chatbot. In return, Anthropic uses Amazon's web services and Google's cloud services as well as buying its chips. Yet that is all relatively small potatoes compared with what AI computing giant Nvidia has brought to the table.
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