Nvidia's $105 Billion Bet: Is It A Smart Play or Circular Financing?

Nvidia has been making significant investments in various companies, including OpenAI and CoreWeave. The latest investment is a $105 billion deal to support the development of a massive data center in Ohio that will be leased by OpenAI.

The data center will likely increase Nvidia's sales as it will require large amounts of powerful graphics processing units (GPUs) from Nvidia, which are crucial for AI applications. This has led some observers to suggest that Nvidia is engaging in circular financing.

Circular financing refers to the practice of investing in companies so they can buy one's own products, thereby inflating revenue and profits. Nvidia has also invested billions in Anthropic, owner of the Claude chatbot, and partnered with Apollo and Blackstone to arrange hundreds of billions in financing for new data centers.

This practice is reminiscent of Cisco Systems' deals during the dot-com boom, which led to a significant decline in its share price when the bubble burst. Nvidia's investors should be cautious as this could impact their finances if the market decides that Nvidia's revenue and profits are not organic but self-financed.