AI Industry's Circular Deals Evoke Savings-And-Loan Crisis

The AI industry's financial deals are starting to resemble the 'daisy chains' of the 1980s savings-and-loan crisis, according to James David Spellman. These circular agreements involve interconnected transactions that obscure dangers, multiply systemic risks, and inflate asset values.

Companies like OpenAI have struck deals with other tech giants, such as Nvidia, ahead of their initial public offerings (IPOs). Anthropic's US$35 billion cloud-computing deal with Lambda is the latest example. In contrast, Nvidia is involved in more than US$750 billion worth of AI investments and financing deals.

The rash of AI investments has led to a borrowing binge by hyperscalers, which carry roughly US$1.65 trillion in debt through special purpose vehicles and other off-balance-sheet structures. This raises concerns about the sustainability of the industry's growth, especially if revenue fails to outpace costs or a black swan event eviscerates AI trajectories.