Analysts are warning that AI investments may be turning excessively circular—companies funding their own customers, who in turn funnel money back through infrastructure contracts—creating bubble risks masked behind aggressive spending
Venture capital and corporate investments in AI are attracting scrutiny as critics warn of a “circular” funding dynamic that may inflate valuations without corresponding real growth. Major tech firms, they say, are funding AI development in ways that ultimately funnel money back into themselves through related infrastructure contracts.
Some analysts see echoes of the dot-com era, where vendors financed customers who in turn bought their products—a practice seen now when chipmakers and cloud providers back AI developers who become heavy users of their own platforms. As Doug Kass put it, “The AI industry is now buying its own revenue in circular fashion.”
The risk, according to skeptics, is that such self-reinforcing loops conceal weak fundamentals and mask overvaluation. Meanwhile, proponents argue that AI’s capital intensity and long time horizons require bold investment, and that the current pattern reflects strategic bets rather than unsustainable hype.
Still, warnings are mounting. Some believe the current wave of AI capex and structuring could heighten systemic fragility and lead to a painful adjustment if expected returns fail to materialize.