Circular AI Deals Explained: Nvidia, OpenAI, and Vendor Financing

A circular AI deal is a financing arrangement in which a technology vendor invests in, finances, guarantees, or otherwise supports a customer, who then uses part of that capital to buy the vendor's products or infrastructure.

The debate around circular AI deals has become one of the most closely watched financial questions in the artificial intelligence market.

The concern is simple.

A chipmaker or infrastructure provider can invest money in an AI company. The AI company can then use that capital to purchase chips, cloud capacity, data-center services, or other infrastructure from the same company that provided the funding.

Money moves outward as investment.

Some of that money can return as revenue.

This does not automatically mean the revenue is fake.

The hardware is real. The computing capacity is real. The customer may also make genuine payments.

The difficult question is whether reported revenue represents independent customer demand or Demand artificially financed by the supplier itself.

That distinction matters because AI infrastructure spending has reached hundreds of billions of dollars.

As a financial analyst, I view the issue as a question of demand quality rather than a simple accusation of accounting fraud. Investors need to understand who provides the capital, who receives the infrastructure, who carries the financial risk, and whether final customers generate enough cash to support the system.

This AurixFinance News guide explains circular AI deals, the relationship between Nvidia and OpenAI, vendor-financed AI, and concerns about AI revenue round-tripping.

What Is a Circular AI Deal?

A circular AI deal occurs when money supplied by a technology vendor helps finance a customer that later purchases products or infrastructure from the same vendor.

The structure can involve several types of financing.

• Direct equity investment
• Vendor loans
• Credit guarantees
• Cloud credits
• Infrastructure guarantees
• Joint financing arrangements
• Data-center lease guarantees

The basic financial loop looks like this:

Vendor provides capital → AI company receives capital → AI company purchases infrastructure → Vendor records revenue.

This is why the phrase circular financing has become common in AI market discussions.

IDC defines circular financing as a structure where the same capital can function both as investment and as vendor-funded spending. The research firm argues that the revenue can still be genuine even if it is difficult to separate from the financing activity that helped fund the purchase. :contentReference[oaicite:0]{index=0}

The structure does not automatically violate accounting rules.

However, investors need to distinguish between two very different situations.

Situation one: An independent customer earns money from outside clients and voluntarily purchases AI infrastructure.

Situation two: A vendor provides capital to a customer, and the customer uses some of that capital to purchase infrastructure from the same vendor.

Both transactions can generate legitimate revenue.

The second transaction creates more questions about the underlying source of Demand.

How Circular AI Capital Flows: A Simple 3-Step Diagram

The loop can be summarized as:

Capital investment → Infrastructure purchase → Vendor revenue.

The exact structure differs from company to company.

Some deals involve direct equity investments.

Others involve third-party lenders, private equity firms, guarantees, e-funds, and special-purpose financing vehicles.

The more entities involved, the harder it becomes for outside investors to determine how much spending originates from independent end demand.

Nvidia and OpenAI: The Most Discussed Circular AI Financing Example

The Nvidia-OpenAI circular investment debate became prominent because Nvidia occupies two positions in the AI economy.

Nvidia sells the hardware required to train and operate advanced AI systems.

Nvidia also invests in companies that need those systems.

In September 2025, OpenAI and Nvidia announced a strategic partnership to deploy at least 10 gigawatts of Nvidia AI systems.

Under the announced framework, Nvidia intended to invest up to $100 billion in OpenAI over time, with each gigawatt of infrastructure deployed. The first phase was targeted for the second half of 2026. :contentReference[oaicite:1]{index=1}

The structure immediately attracted attention.

Nvidia was both:

• An investor supporting OpenAI's growth.
• A major supplier of computing infrastructure OpenAI planned to use.

That relationship does not prove that Nvidia's revenue is artificial.

OpenAI operates real AI products and serves hundreds of millions of users.

However, the arrangement creates a financial loop that investors must analyze carefully.

If Nvidia provides capital to OpenAI and OpenAI spends part of that capital on Nvidia systems, some demand may depend on financing supplied by the vendor itself.

In February 2026, OpenAI announced a $110 billion financing round at a stated $730 billion pre-money valuation. OpenAI said the round included $30 billion from Nvidia. :contentReference[oaicite:2]{index=2}

This example demonstrates why investors use the term "vendor investment".

A supplier can support a customer's ability to finance future infrastructure purchases.

The supplier may then benefit from those purchases.

Nvidia's 2026 Infrastructure Financing Expansion

The financing structure has expanded beyond direct investments in AI laboratories.

In August 2026, Nvidia announced partnerships with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR to establish AI compute financing platforms designed to mobilize more than $500 billion in third-party capital over time. :contentReference[oaicite:3]{index=3}

Nvidia described the goal as creating financing structures for AI compute and infrastructure.

The arrangement differs from Nvidia directly handing customers money.

Third-party capital providers would participate in financing infrastructure assets.

Still, investors should examine whether the financing system increases demand. Demand mainly makes it easier for customers to purchase additional Nvidia infrastructure.

That distinction will become more important as AI capital expenditure grows.

What Is Vendor Financing in AI?

Vendor financing in AI refers to arrangements where a technology supplier helps finance a customer's purchase of technology products or infrastructure.

Vendor financing is not new.

Industrial equipment companies have long offered financing programs.

Aircraft manufacturers have supported customer financing.

Technology vendors have offered payment terms and leasing arrangements.

The AI version attracts more attention because infrastructure spending is unusually large.

Training frontier AI models requires enormous computing capacity.

Data centers can cost billions of dollars.

Advanced AI chips represent another major expense.

Apollo Chief Economist Torsten Slok wrote that hyperscaler capital expenditure had already tripled since 2023 and that forecasts pointed toward more than $2.7 trillion in cumulative AI-related spending between 2025 and 2029. :contentReference[oaicite:4]{index=4}

At that scale, many customers cannot finance every project entirely from operating cash flow.

Companies therefore seek:

• Private credit
• Corporate bonds
• Equity investment
• Infrastructure funds
• Lease financing
• Vendor guarantees
• Joint venture financing

Vendor financing can accelerate infrastructure construction.

It can also create a feedback loop between the supplier's capital and the supplier's revenue.

What Is AI Revenue Round-Tripping?

AI revenue round-tripping is a situation in which investment capital circulates through customers and eventually returns to the original investor as revenue.

The term can sound more dramatic than the underlying mechanics.

Actual hardware and services can still be delivered.

Actual cash payments can still occur.

The concern involves the origin of the purchasing power.

Consider a simplified example.

The sale may be legally valid.

The chips may be physically delivered.

Company B may genuinely need the computing capacity.

However, investors cannot treat the entire $7 billion as evidence of complete independence and demand, considering the original $10 billion investment.

This is the analytical problem.

Revenue growth may be real, even if the underlying purchasing power is is partly sourcedsourced from the vendor's balance sheet.

IDC describes this problem as a situation where reported revenue cannot always be cleanly separated from the investment activity that enabled the spending. :contentReference[oaicite:5]{index=5}

Why Companies Use Circular Financing Structures

Companies do not necessarily use these structures to create artificial sales.

There are several practical reasons.

1. AI Infrastructure Requires Huge Upfront Capital

AI laboratories often need billions of dollars before their businesses generate enough cash to pay for infrastructure internally.

Training advanced models requires expensive computing resources.

Inference capacity also requires large data-center investments.

Vendor investment can help companies build infrastructure earlier.

2. Vendors Want to Protect Demand

A chip manufacturer benefits when AI laboratories have sufficient capital to purchase infrastructure.

Providing financing can help secure long-term customers.

This can also reduce the risk that a major customer delays infrastructure expansion because of temporary funding constraints.

3. Competition Creates Pressure to Invest

AI companies compete for computing capacity.

Chip companies compete for customers.

Cloud providers compete for workloads.

Financial firms compete to finance the infrastructure.

The result can become a race to secure capacity before competitors do.

The Bank for International Settlements has warned that competition for dominant positions can encourage firms to invest more aggressively than traditional return calculations would justify. :contentReference[oaicite:6]{index=6}

4. Infrastructure Assets Can Attract Financial Capital

Large investors increasingly view data centers and AI computing infrastructure as long-term assets.

Nvidia's August 2026 financing partnerships explicitly aimed to mobilize third-party capital for AI infrastructure. :contentReference[oaicite:7]{index=7}

This could reduce the need for AI companies to finance every project directly.

It could also create more complex relationships among infrastructure vendors, lenders, and AI customers.

Financial Risks of Circular AI Deals

Circular financing creates several risks that investors should monitor.

1. Demand Can Look Stronger Than Independent Demand

A vendor-supported customer may purchase more infrastructure than it could afford using its own operating cash flow.

This can accelerate revenue growth for the vendor

The growth may slow if financing conditions change.

2. Customer Risk Can Return to Vendor. If the vendor invests in the customer and depends on that customer for future revenue. Vendor's exposure is in two directions.

The equity investment can lose value.

Future infrastructure purchases can decline.

3. Credit Risk Can Increase

Vendor guarantees and infrastructure financing can create obligations outside traditional product sales.

Investors need to understand who would pay if the AI company cannot meet its lease or debt obligations.

Reuters reported in August 2026 that Nvidia committed to provide guarantees of up to $105 billion connected to OpenAI's planned Ohio data-center project. The structure included lease and power payment support and designated Nvidia as the exclusive chip supplier for the site. :contentReference[oaicite:8]{index=8}

4. Infrastructure Can Become Oversupplied

Capital may continue to flow into data centers because every participant expects future demand.

If AI demand grows more slowly than expected, utilization rates could fall.

Infrastructure assets would then generate lower returns.

5. Valuations Can Depend on Financing Availability

Some AI companies receive extremely high valuations while remaining unprofitable.

If capital markets become less willing to fund losses, those companies may need to reduce spending.

That could reduce demand for Demandstream infrastructure.

Real Revenue vs Investor-Funded Demand

The central question is often misunderstood.

Circular financing does not necessarily mean revenue is fake.

A more accurate question is:

How much of AI infrastructure demand comes from customers earning money from external markets, and how much comes from capital raised from investors?

This distinction separates two types of economic activity.

Independent End Demand

A company purchases AI infrastructure because its own customers pay for AI products or services.

The spending comes from operating cash flow generated through commercial activity.

Investor-Funded Demand

An AI company raises capital from investors and uses the money to finance computing infrastructure.

The infrastructure vendor records revenue.

The vendor may also be one of the investors.

The highlighted phrase, "investor-funded profits," explains why some analysts are concerned about the current AI cycle.

If upstream infrastructure companies earn large profits while downstream AI companies remain heavily loss-making, investors must determine whether final customer revenue will eventually support the entire system.

Torsten Slok and the AI Profit Question

Apollo Chief Economist Torsten Slok has become one of the most prominent critics of the current AI profit structure.

His argument focuses on the distinction between companies that sell infrastructure and those that develop AI models and applications.

According to reporting on Slok's analysis, companies in the silicon and equipment category had average operating margins around 41%, while companies in models and applications had average operating margins around -59%. :contentReference[oaicite:9]{index=9}

The difference creates a financial question.

Upstream companies can earn strong margins because AI laboratories need chips, servers, and data-center equipment.

Downstream AI companies may still lose money while they develop products and acquire customers.

Slok's argument can be paraphrased simply:

Some AI infrastructure profits are currently financed by capital raised by companies lower in the AI supply chain rather than by sufficient end-customer cash flow.

This does not mean AI demand is nonexistent.

OpenAI, Anthropic and other companies report rapid revenue growth.

The financial issue concerns whether that growth can eventually fund the enormous infrastructure required to support it.

Q: What does investor-funded AI demand mean?

A: Investor-funded AI demand means an AI company uses money raised from investors to purchase computing infrastructure before its own customer revenue can fully cover those costs. The infrastructure supplier may record real revenue, but investors must determine whether the spending will eventually be supported by profitable end demand.

AI Debt and Infrastructure Financing

The AI boom began with large technology companies funding much of their capital expenditure from operating cash flow.

The financing model is changing.

Apollo reported that Oracle, Meta, Google,e and Amazon issued approximately $90 billion in bonds during the final three months of 2025 as AI investment increased. :contentReference[oaicite:10]{index=10}

Debt financing can expand the amount of infrastructure companies can build.

It also introduces fixed financial obligations.

If AI demand remains strong, debt can support profitable expansion.

If expected demand does not arrive, companies may face interest and repayment obligations while infrastructure generates lower-than-expected returns.

The BIS has warned that the growing connection between AI infrastructure and financial markets could increase systemic financial exposure. :contentReference[oaicite:11]{index=11}

This makes circular financing more important to investors.

The issue is no longer limited to technology companies investing their own cash.

Private credit, banks, infrastructure funds, and institutional investors are becoming more involved.

Circular Financing vs Traditional Vendor Sales

Does Circular Financing Automatically Create an AI Bubble?

No.

Circular financing alone does not prove that the AI market is a bubble.

Technology infrastructure has often required complex financing structures.

Railroads, telecommunications networks, energy infrastructure,  re and data centers all required large amounts of capital.

The risk increases when several conditions appear together.

• Rapid capital expenditure growth
• Weak downstream profitability
• Increasing debt financing
• Vendor-funded customer purchases
• High stock valuations
• Uncertain end-user demand

Investors should monitor the entire system rather than focusing on one transaction.

A circular deal may be economically reasonable when a financially strong vendor supports a rapidly growing customer with clear future demand.d

The same structure becomes riskier when customers cannot survive without a constant stream of new capital.

Commissioning and Testing Checklist for Investors

Technical Glossary

1. CAPEX

Capital Expenditure. Money spent on long-term physical assets such as data centers, servers, power systems,m,s and computing hardware.

2. FCF

Free Cash Flow. Cash remaining after a company pays operating expenses and capital expenditure.

3. GPU

Graphics Processing Unit. A specialized processor widely used for training and operating large AI models.

4. SPV

Special Purpose Vehicle. A separate legal entity created to hold assets, debt, or specific financial obligations.

5. ARR

Annual Recurring Revenue. A revenue metric that estimates yearly subscription revenue based on recurring customer payments.

Frequently Asked Questions

1. What are circular AI deals?

Circular AI deals are financing s arrangements in which a technology vendor provides investment, financing, guarantees, or other financial support to a customer that later purchases products or infrastructure from the same vendor. The concern is that some of the vendor's revenue may depend on capital the vendor helped provide.

2. Is circular financing illegal?

No. Circular financing is not automatically illegal. Vendor investments, customer financing,  and infrastructure guarantees are legitimate business structures. Investors should examine the accounting treatment, disclosure quality,t,y and economic substance of each transaction.

3. What is the Nvidia OpenAI circular investment relationship?

Nvidia is both a major infrastructure supplier to OpenAI and an investor in OpenAI. In September 2025, the companies announced plans involving at least 10 gigawatts of Nvidia systems and an intended investment framework of up to $100 billion. OpenAI later announced a $110 billion financing round that included $30 billion from Nvidia. :contentReference[oaicite:12]{index=12}

4. Does circular financing mean Nvidia's revenue is fake?

No. Hardware can be physically delivered,e,d and customers can make genuine cash payments. The concern is not automatically false revenue. The concern is whether some customer purchasing power originates from capital supplied by the vendorthe vendor, which can make the demand signal harder to interpret.

5. What is vendor financing in AI?

Vendor financing in AI occurs when a supplier helps customers finance AI infrastructure purchases through investments, loans, guarantees, credits, or other arrangements. This can accelerate infrastructure deployment but may also increase financial links between vendor revenue and customer funding.

6. What is AI revenue round-tripping?

AI revenue round-tripping describes a potential financial loop in which investment capital moves from a vendor to a customer and later returns to the vendor through purchases of hardware, cloud services, or infrastructure. The transactions can be legitimate, but investors need to understand the source of the customer's purchasing power.

7. Why are investors worried about circular AI deals?

Investors worry that circular financing may make infrastructure demand appear stronger than independent end demand. If AI companies depend heavily on investor capital rather than profitable customer operations, infrastructure spending could decline when financing becomes more difficult.

8. What does Torsten Slok say about AI profits?

Apollo Chief Economist Torsten Slok has argued that parts of the AI supply chain earn strong upstream margins while companies building models and applications remain deeply unprofitable. His analysis raises the question of whether infrastructure profits can eventually be supported by customer demand rather than continuous investment capital. :contentReference[oaicite:13]{index=13}

9. Can circular AI financing increase debt risk?

Yes. As AI infrastructure spending grows, companies increasingly use corporate bonds, private credit,  and infrastructure financing. Debt can support expansion, but it also creates fixed obligations. If AI demand does not grow as expected, highly financed infrastructure projects may face pressure.

10. How should investors analyze circular AI deals?

Investors should review who provides the capital, whether vendors are investors, how the customer's spending comes from operating cash flow, whether the customer is profitable, how debt supports the customer, and whether the customer generates enough revenue to support long-term AI spending.

Author Profile

IFAZ Moshaddik, Market Strategist at AurixFinance News

IFAZ Moshaddik is a financial market analyst focused on AI in finance, renewable energy stocks, and U.S. macroeconomics. His work examines corporate earnings, capital expenditure, market valuations, debt structures, and technology investment cycles. AurixFinance News publishes data-driven analysis for investors seeking clearer explanations of financial events and market risks.

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