DI25008 Strange AI Deals V01 081025

 

That’s bubblenomics, for you. Always hard to spot until everything goes pop.

Look at the circular deals that Sam Altman’s OpenAI has struck with Nvidia and AMD, built on dotcom-style vendor financing, and you have to wonder if we’re not getting closer to a Mr Creosote moment — only with the blow-up caused not by a wafer-thin mint but one silicon chip too many.

Sure, who really knows? One person’s ingeniously developed AI ecosystem is another’s industrial Ponzi scheme. And there are no unbiased voices in this debate, not even the chatbot at the centre of it.

Ask ChatGPT if we’re now in bubble-land and it says: “These kinds of circular supplier-customer deals are a warning sign. They show that some growth may be reflexive rather than organic, and they do resemble early-bubble dynamics from past tech booms. But they don’t prove a bubble is here yet.” So, there you go — relax, folks. Not that anyone really can when you know Altman’s trained it up to say that.

Still, whatever your take on where all this is heading, one thing’s hard to miss. That, in recent weeks, we’ve seen two incestuous deals, involving gargantuan sums of money. And that the company at the centre of them, OpenAI, won’t have the cash to finance everything it’s signed up to unless a lucrative AI nirvana arrives. A fortnight ago, Altman struck a pact with Nvidia that will see the biggest firm on the planet take a $100 billion stake in OpenAI, so providing it with funds to buy its chips: the sort of carry-on where a supplier bankrolls a customer that always raises red flags.

And now, Altman’s done something similar with AMD, arguably Nvidia’s biggest rival, so the pair can collaborate on the rollout of vast AI data centres.

Under the deal, OpenAI has committed to buy six gigawatts’ worth of AMD chips, either directly or through its cloud computing partners, with the deal poised to deliver the chipmaker “tens of billions of dollars” in sales: the reason AMD shares shot up 24 per cent. In return, OpenAI gets warrants over 10 per cent of AMD stock at a nominal one cent a share, exercisable if certain targets are hit.

Think about that for a moment: if Nvidia is taking a stake in OpenAI and OpenAI one in AMD, won’t Nvidia wind up with a holding in a key rival? In fact, that’s just part of an interconnected web, built around OpenAI’s spending pledges. It also has a $300 billion agreement to buy cloud computing power from Oracle, a $22 billion deal with the data centre group Coreweave and a $10 billion spend with Broadcom to build its own in-house chip.

As Altman told the Wall Street Journal: “We are in a phase of the build-out where the entire industry’s got to come together and everybody’s going to do super well.”

Well, maybe. Yet, say mutual benefit turns into mutual destruction? A fair bit of the money flows are riding on OpenAI, an outfit embroiled in about $1 trillion of deals. True, it’s valued at $500 billion. But that could be a bubble, too. And for now, it has nothing like the revenues to support all of these deals. It expects $13 billion sales this year.

True, these huge bets could yet pay off, with AI not only transforming the global economy but OpenAI and its Silicon Valley partners. But it may not just be the stock market aloft on such hopes.

As economist Paul Krugman noted of the US economy: “Without the data centre boom, we’d probably be in a recession.” Much yet depends on how much companies and consumers are willing to pay for AI, while China’s DeepSeek was a hint the US can’t take its AI dominance for granted. And whatever the Mag7’s deep pockets, the deals involving OpenAI do look riskily circular. Quite bubblish, in fact