Commentary: Who’s paying whom? The circular money machine behind the AI boom

The AI boom is a circular money machine where chip suppliers invest in customers, customers spend on suppliers' chips, and all companies report growth. A central bank analysis revealed that 55.2% of investments into AI firms came from other AI firms. Nvidia, the leading chipmaker, is a key player in this cycle. It invested US$30 billion in OpenAI to support data centers filled with Nvidia chips.

Nvidia also invested in other AI firms like Anthropic and CoreWeave, totaling more than 50 deals in 2024 alone. This circular financing structure helps the AI build-out move faster, but it raises concerns about the sustainability of the boom. The Reserve Bank of Australia warned of potential risks due to opaque or circular funding arrangements, which could lead to a bubble burst if expectations of rapid earnings growth and a debt-financing cycle prove unrealistic.

Nearly all the gains in the US stock market have been driven by AI companies, making the market fragile. If investors doubt OpenAI and similar customers' ability to generate sufficient revenue, Nvidia would be negatively impacted on two fronts: lower expected sales and its financing exposure. This financial interdependence could have significant consequences for the Australian economy, as nearly 90% of households are exposed to AI stocks through superannuation funds.