Nvidia's $105 Billion Bet on AI Firms Raises Red Flags

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

This arrangement has raised concerns about circular financing, where Nvidia invests in AI firms and data centers to build more infrastructure that requires its powerful chips.

Circular financing deals were common during the dot-com boom of the late 1990s, when companies like Cisco Systems inflated their revenue through similar arrangements. When the bubble burst, Cisco's share price plummeted from $77 in 2000 to $12 in 2001 and didn't recover fully until 2025.

Nvidia's investors should be cautious about this practice, as it may not necessarily lead to organic growth. If Nvidia invests in companies that fail or can no longer pay for its products, it will lose both revenue streams and investments, damaging its finances.