AI ecosystem's 'circular' investment: risk or advantage?
Amid talk of an AI sector bubble, one aspect is under scrutiny. Many big AI players are invested in smaller ones, who then buy the
Amid talk of an AI sector bubble, one aspect is under scrutiny. Many big AI players are invested in smaller ones, who then buy the bigger firm's products. This brings risks and advantages. 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) mitigates 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". The circular model Circular financing typically works as follows: a company pays money to another for a product or deal, or invests in that company or provides a loan or lease. Then that company buys the products or services of the first company. It can be seen across the spectrum of AI deals.
The emergence of OpenAI's ChatGPT kickstarted the AI boom Image: Matteo Della Torre/NurPhoto/picture alliance 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. Nvidia: King of the Jungle Yet that is all relatively small potatoes compared with what AI computing giant Nvidia has brought to the table. "Nvidia sits at the center of the AI ecosystem, acting not only as a technology supplier but also as a strategic investor helping accelerate adoption of its platform," says Tan. Slijkerman says Nvidia plays a vital role, as it contributes to the development of a variety of new businesses, from healthcare to autonomous driving. "Its investments help support the growth of the broader AI ecosystem while also facilitating the deployment of AI infrastructure," he says. The story that Nvidia is in talks to provide $250 billion to OpenAI, first reported by The Wall Street Journal, would be just the latest megadeal the $4.6 trillion company has bankrolled.
The BriefWire