Circular financing in AI explained: when the chip supplier is also the investor

When a chipmaker invests in the company that buys its chips, the money can go in a circle. That is the plain meaning of circular financing in AI, and it is the phrase doing the most work in arguments about whether the build-out is real. This explainer defines it, walks through four public examples with what their documents actually say, and gives a simple test for telling a partnership from a loop.

What is circular financing in AI?

Circular financing, also called vendor financing, is any arrangement where a supplier puts money into a customer and the customer uses it to buy the supplier's goods. The supplier books revenue, the customer books an asset or a loss, and the question is whether anyone outside the pair is paying for the end product. Vendor financing is an old tool in telecoms and equipment sales. The AI version is bigger and more public because the sums reach billions and the same few firms sit on both sides.

The term is not a legal category and it is not an accusation. Plenty of supplier investments are ordinary. What matters is how binding the commitment is, how it is tied to actual deployment, and whether real outside demand sits underneath.

Example one: Nvidia and OpenAI

NVIDIA's September 22, 2025 release announced a letter of intent to deploy at least 10 gigawatts of Nvidia systems with OpenAI, which it says represents millions of GPUs. Nvidia said it intended to invest up to $100 billion in OpenAI to help fund data center and power capacity, with the investment staged as each gigawatt comes online. The first gigawatt was targeted for the second half of 2026 on the Vera Rubin platform, and the companies said they expected to finalize details in the coming weeks. Jensen Huang said the plan was about "deploying 10 gigawatts to power the next era of intelligence."

Two features make this the textbook case. The money flows from the supplier to the buyer. And the money is tied to deployment, so each tranche follows the purchase. We have not seen the final agreement, so the release describes intent as of its date.

Example two: Meta's stock sale

On October 26, 2026, Meta launched about $35 billion of stock offerings. Its release says Nvidia, AMD and Broadcom indicated interest in up to $5.0 billion of Class A stock, then adds that the indications are "not binding agreements or commitments to purchase." Our separate report on the offering has the full terms.

Here the loop is looser. The suppliers would be buying shares at the same price as other investors, not receiving a special deal. AMD's October 27 release, though, is firmer than Meta's and says AMD will invest $1 billion in Meta's offering, while the first Helios racks are installed and being tested at Meta. A supplier that sells chips to a customer and holds the customer's stock has a stake in the customer's spending.

Example three: Oracle's backlog

Oracle is not an investor in this story, but its backlog shows the dependence. Next Platform reports Oracle's remaining performance obligations, the contracted but not yet delivered revenue, reached $664 billion in its first fiscal quarter of 2027, up $209 billion, with capital expenditure that could exceed $90 billion this fiscal year. Nvidia's release says OpenAI trained and served GPT-6 Astra on an Oracle cluster in Abilene with more than 100,000 Nvidia Blackwell GPUs. When a few AI developers hold the demand, every supplier above them depends on those developers staying funded.

Example four: lenders and landlords

The same pattern shows up in debt. Our coverage of Broadcom as a lender to Anthropic is a case where a chipmaker is the creditor. We mention it as another shape of the same idea, supplier capital flowing to a buyer, not as proof of anything wrong.

Why the loop matters if demand wobbles

The reason to care is what happens under stress. Meta's own release says it expects 2026 capital expenditures of $135 billion to $145 billion, against $97 billion of operating cash flow in the first three quarters. That gap is what the stock sale helps cover. If a buyer's spending depends on raising money, and the supplier is one of the investors, a pause in funding can reach the supplier's order book and the supplier's investment at the same time. That is a general point about concentrated risk, not a forecast for any company, and none of the documents we opened says it is happening.

A three-question test

Use these on any deal.

• Is it binding? A letter of intent or a non-binding indication can vanish. A signed agreement with dates is different.
• Is it tied to deployment? Payment in stages as capacity comes online is safer than a lump sum, because the spend follows real use.
• Does outside revenue sit underneath? If the end customer's income comes from users and businesses paying for AI, the loop has a floor. If it comes mainly from the next funding round, it does not.

What the evidence supports

The documents we opened show real ties between suppliers and customers, and they show wide variation in how firm those ties are. None of them shows revenue being invented. What they cannot show is the third question, because the demand figures sit outside them. That is why the argument keeps going: both sides can cite the same filings.

Our take

Treat "circular" as a prompt to read the terms, not as a verdict. When a release says "not binding," discount it. When a payment is tied to gigawatts delivered, give it more weight. And when a backlog like Oracle's is described as demand, ask who is paying for the end product. The honest answer to the circularity question is that it depends on the deal, and the deal terms are public enough to check.