Recent market movements show money exiting AI-related stocks and flowing into crypto assets, a shift attributed to a sharp drop in oil prices, falling U.S. Treasury yields, and a risk-off sentiment towards AI shares, particularly memory chipmakers. Owen Lau, an analyst at ClearStreet, highlighted intensifying competition from Chinese chip companies and worries about revolving financing schemes as key factors prompting a reassessment of AI infrastructure stocks.
The core of the concern revolves around "circular financing" where a supplier, such as Nvidia, helps finance its customers who then use those funds to purchase the supplier’s products. Bloomberg's interactive guide has highlighted this intricate web of investments. For instance, Nvidia is reportedly pursuing deals exceeding $750 billion, including a speculated $100 billion investment in OpenAI, with OpenAI committing to purchase millions of Nvidia chips. This raises questions about the true organic demand for AI products when revenue is generated from investor-funded purchases. Microsoft has also poured over $13 billion into OpenAI, including a $10 billion infusion in early 2023, paired with a $250 billion purchase agreement for cloud services.
Nvidia’s involvement extends further, including discussions to guarantee up to $250 billion in financing for OpenAI to lease a 10-gigawatt data center in Ohio. The company has also agreed to back Ilya Sutskever’s Safe Superintelligence and holds a 7% stake in CoreWeave, with a commitment to buy $6.3 billion in cloud services. These actions reinforce the perception that Nvidia is evolving into a financier of its own ecosystem rather than just a chip supplier. This financial entanglement has led to a significant market reaction, with the cost of insuring Nvidia’s five-year debt against default recording its largest single-day increase on record, signaling bond investors' reevaluation of the associated risks.
The broader impact of this AI sector uncertainty is also being felt in the cryptocurrency market. Bitcoin, for example, joined the tech selloff, with AI-linked bitcoin mining stocks falling. Some investors are questioning the sustainability of credit demand for these projects and the ability of developers to secure funding without significant equity dilution or high-interest debt. Consequently, many digital-asset treasury companies, previously focused on cryptocurrencies, are pivoting to AI-related businesses like data center development and computing infrastructure. This trend is evident in companies like CoreWeave, which transitioned from crypto mining to cloud computing infrastructure for AI.
