AI Industry's Circular Financing Echoes 1980s Banking Crisis

A troubling pattern emerges

The artificial intelligence industry's explosive growth is increasingly powered by a web of interconnected financial arrangements that bear an unsettling resemblance to the "daisy chains" that helped trigger the savings-and-loan crisis four decades ago. These circular deals—where the same companies finance, supply, and purchase from one another—are creating an ecosystem that may be more fragile than it appears.

According to analysis first reported by the South China Morning Post, Nvidia alone is involved in more than $750 billion worth of AI investments, financing deals, and partnerships. The company's CFO Colette Kress disclosed that demand from AI labs receiving Nvidia financial support will represent roughly a quarter of the chipmaker's business next year—a striking indicator of how intertwined these relationships have become.

The mechanics of circular financing

The pattern is straightforward: AI companies strike multi-year commitments that bundle financing, semiconductor purchases, power contracts, and data center leases into single arrangements. OpenAI has established such deals with Nvidia, CoreWeave, and others ahead of its planned 2025 initial public offering. Competitors Anthropic and xAI have pursued similar strategies.

Anthropic recently signed a $35 billion cloud-computing agreement with Lambda and a $45 billion arrangement with Nscale—both Nvidia-backed providers—to secure data center capacity. These interlocking commitments create a financial structure where the same capital circulates through the ecosystem, potentially inflating valuations without corresponding external revenue growth.

Hidden leverage compounds the risk

Beyond the circular deal structure, major technology companies are carrying substantial hidden debt. The five largest hyperscalers hold approximately $1.65 trillion in obligations through special purpose vehicles and off-balance-sheet structures, exceeding the $1.35 trillion they report directly, according to Nikkei data cited in the report.

AI investments have reached unprecedented scale—4.5 times the level recorded three years ago, according to Bank for International Settlements data. This raises a fundamental question about sustainability: how much of the industry's extraordinary growth is being financed by the same companies that benefit from it?

Why it matters

The 1980s savings-and-loan crisis demonstrated how interconnected transactions can obscure dangers and multiply systemic risks before a collapse. If AI revenue growth fails to outpace costs, or if an unexpected disruption derails current trajectories, the circular nature of these financing arrangements could amplify losses across the entire ecosystem. Business leaders and investors need visibility into whether AI growth represents genuine market expansion or a self-reinforcing financial structure vulnerable to rapid unwinding.

These details were first reported by the South China Morning Post in an analysis by James David Spellman, principal of Strategic Communications LLC.