FROM THE FRONTIER
Wall Street analysts sound the alarm on AI companies’ ‘circular’ investments
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Never before has so much money been spent so rapidly on a technology that remains largely unproven for profit-making. Now, a growing chorus of top analysts is warning that AI investments could be inflating an unsustainable bubble.
The latest move: A couple of days ago, OpenAI struck a multibillion-dollar deal with AMD that sent the chipmaker’s stock soaring 24%, potentially giving OpenAI warrants to buy up to 10% of the company. It follows a similar $100B arrangement with Nvidia, announced two weeks earlier. These commitments now top $1T, according to the Financial Times — double OpenAI’s $500B valuation.
The deals follow a familiar pattern. Chip companies invest in OpenAI, which then uses those funds to purchase the investors’ own products. In Nvidia’s case, the chip giant is investing $100B in the ChatGPT maker over the next decade — money OpenAI will use to buy Nvidia chips. AMD’s deal includes warrants tied to share price milestones, meaning OpenAI could potentially sell the stock to fund its chip purchases.
Analysts are ringing warning bells: “OpenAI is in no position to make any of these commitments,” DA Davidson analyst Gil Luria told the Financial Times, noting the company could lose about $10B this year. Goldman Sachs CEO David Solomon compared current investment levels to the dot-com bubble, warning that “it’s not different this time” and predicting a market correction within the next 12 to 24 months.
Why this matters: The investment boom in AI has given rise to a tangle of circular deals that bind the fates of many companies together. This has some analysts drawing parallels to 2008’s financial crisis. IMF managing director Kristalina Georgieva has warned that bullish market sentiment around AI could “turn abruptly,” landing a huge blow to the world economy.