Forget the hype about trillion-dollar AI infrastructure. The real story is uglier: Nvidia may be preparing to backstop a massive data-center lease for OpenAI — and that’s not a sign of strength. It’s a throwback to the circular-financing schemes that inflated the last two tech bubbles. And one analyst is calling it out before investors get burned again.
The report, first flagged by The Information, suggests Nvidia could guarantee a lease worth billions for OpenAI’s cloud computing needs. This would be the largest such arrangement yet — and arguably the most dangerous. Because here’s the thing: Nvidia is both OpenAI’s biggest supplier (GPUs) and now potentially its financial guarantor. That’s like a landlord cosigning a tenant’s rent check while also selling them furniture. If the tenant can’t pay, the landlord eats the loss — but books the furniture sale as revenue today.
That’s the spooky habit. Companies prop up their own customers to keep demand looking real. It’s the same playbook SoftBank used with WeWork, where Vision Fund cash flowed into WeWork, which then spent it on SoftBank-backed startups. Circular. Self-reinforcing. And ultimately, a house of cards.
“It’s a classic bubble behavior,” says the analyst, whose warnings have been circulating on Wall Street. “You start to see companies underwriting the very demand that justifies their own valuations. Nvidia’s GPU sales to OpenAI look amazing — until you realize Nvidia might be effectively subsidizing those purchases.”
Investors have been pouring into AI stocks on the assumption that demand for Nvidia’s chips is organic, driven by real applications. But if the biggest customer can’t secure its own lease without Nvidia’s backing, that assumption starts to crack. And when assumptions crack, multiples compress.
The Circular Financing Playbook Makes a Comeback
This isn’t new. In the dot-com era, telecom companies loaned money to each other to buy each other’s capacity. Revenues looked real, but they were just recycling cash. The same pattern emerged in the 2010s with SoftBank’s Vision Fund: it invested in startups that then paid SoftBank’s portfolio companies for services. The cash went in a circle.
Now AI is flirting with the same trap. Nvidia, the world’s most valuable chipmaker, has a market cap north of $2 trillion. Its revenue growth has been breathtaking — Q4 fiscal 2024 data center revenue hit $18.4 billion, up 409% year-over-year. But a growing chunk of that comes from a handful of hyperscalers and AI labs, including OpenAI. If OpenAI stumbles — and it’s burning cash at an estimated $5 billion annual rate — those GPU orders could evaporate.
A lease guarantee would change the math. If Nvidia guarantees OpenAI’s lease, and OpenAI can’t pay, Nvidia is left holding the bag. Meanwhile, Nvidia books the GPU revenue upfront. That’s revenue recognition without real demand validation. It’s a distortion that makes Nvidia’s financials look stronger than they are.
“This is the kind of thing that keeps CFOs up at night,” one risk analyst told me. “You’re basically monetizing your own customer’s credit risk. And if the customer is your largest revenue driver, you’ve got a concentration problem on steroids.”
It also raises questions about OpenAI’s independence. The startup has already raised over $13 billion from Microsoft, but its capital needs are insatiable. A Nvidia-backed lease would give the chipmaker even more leverage over OpenAI’s operations. That’s not good for competition — or for investors betting on a level playing field.
Why This Deal Spooks Analysts
The core worry is that Nvidia is becoming too intertwined with its own demand. Think of it like a drug dealer who also lends money to an addict to buy drugs. Sure, sales are booming. But eventually, the addict either gets clean or dies — and the dealer is left with bad debts.
Analysts have started flagging this risk in research notes. One pointed out that if Nvidia’s data center revenue is partially “self-funded” through guarantees, the true end-user demand is lower than reported. That would mean the AI capex cycle is less durable than the market believes.
And the market really believes. Nvidia’s stock trades at over 30 times forward earnings — a premium that assumes years of uninterrupted growth. Any whiff of circular financing could trigger a re-rating. History says these re-ratings are brutal. Cisco lost 80% of its value in the dot-com crash. WeWork’s backers lost billions.
It’s not just Nvidia. The entire AI infrastructure complex — data-center REITs, energy providers, networking companies — is priced for perfection. A deal like this introduces fragility. If Nvidia stumbles, the whole ecosystem wobbles.
For a deeper look at how political backlash could also hit AI data-center stocks, check out our guide: Is Your AI Data-Center Stock Safe from Voter Backlash? A 5-Part Test. It’s a handy framework for stress-testing your holdings.
What It Means for Nvidia Shareholders
If you own Nvidia, this deal is a red flag — but not necessarily a sell signal. The company has extraordinary cash flow and a dominant moat in GPU design. But you need to watch three things:
1. Disclosure. If Nvidia guarantees a lease, it must disclose that as a contingent liability. Check the 10-Q for off-balance-sheet arrangements. If the number is big, ask why.
2. Customer concentration. OpenAI already accounts for a significant slice of Nvidia’s data center revenue. A lease guarantee would tie them even closer. Diversification is the only cure, but it’s not happening fast.
3. The narrative shift. Wall Street loves a story of organic demand. Circular financing smells like manipulation. If analysts start downgrading on this basis, the stock could drop 20% or more before fundamentals even change.
Compare this to the Cracker Barrel saga, where a CEO change after rebrand chaos rattled investors. That was a microcosm of poor governance. Nvidia’s governance isn’t poor — but this deal tests the limits. Read more: Cracker Barrel CEO Out After Rebrand Chaos – What Investors Need to Know. The lesson: when companies start doing things that look like financial engineering, it’s time to pay attention.
Lessons from the Last Bubble
The dot-com bust taught us that even the best technology can’t survive bad finance. Cisco had the best routers, but its stock collapsed when telcos stopped buying. Nvidia has the best AI chips, but if its biggest customer is on life support, the party ends.
There’s a parallel to the WeWork fiasco. SoftBank’s Masayoshi Son kept pouring money into WeWork, which then rented office space from SoftBank-backed landlords. The circularity masked WeWork’s true unprofitability. Nvidia-OpenAI isn’t as extreme, but the pattern is disturbingly similar.
What’s different this time? The sheer scale. OpenAI is reportedly seeking a data-center lease worth $100 billion over the next decade. A guarantee of even a fraction of that would be the largest corporate backstop in history. If it goes wrong, it’s not just a startup failure — it’s a systemic event for the semiconductor industry.
The SEC may eventually take interest. Circular financing has drawn regulatory scrutiny before. In 2019, the FTC fined a company for misleading investors about related-party transactions. If Nvidia’s guarantee is structured as a hidden subsidy, disclosure rules could bite.
For now, the deal is just a rumor. But the rumor alone is telling. It suggests that even the most powerful AI companies can’t raise capital without help from their suppliers. That’s not a sign of a healthy market. It’s a sign of a bubble propped up by its own participants.
The bottom line: Nvidia is a great company with a great product. But great companies can make bad deals. If this lease guarantee goes through, investors should demand transparency — and maybe hedge their bets. Because when the music stops, the one holding the guarantee is the one left without a chair.
Frequently Asked Questions
What is circular financing, and how does it apply to Nvidia and OpenAI?
Circular financing occurs when a company provides financial support to a customer, who then uses that support to buy the company’s products or services. In this case, Nvidia would guarantee a data-center lease for OpenAI, enabling OpenAI to expand its computing capacity. OpenAI would then use that capacity to run AI workloads on Nvidia GPUs, generating revenue for Nvidia. The problem: the revenue looks like organic demand, but it’s actually subsidized by Nvidia’s own credit. This inflates Nvidia’s reported growth and masks the true level of end-user demand.
How would this deal affect Nvidia’s stock price?
In the short term, the deal might be seen as a positive — it secures a major customer and locks in future GPU sales. But over the medium term, it introduces risk. Analysts could question the quality of Nvidia’s revenue, leading to lower valuation multiples. If the market re-rates Nvidia from 30x earnings to 20x, the stock could drop over 30%. Investors should watch for any disclosure of contingent liabilities in Nvidia’s filings.
Should I be worried about an AI bubble?
This deal is one data point, but it fits a pattern of frothy behavior. When companies start underwriting their own customers, it’s a classic late-cycle sign. However, not all AI spending is fake. The key is to distinguish between real adoption (enterprise AI tools, inference workloads) and speculative infrastructure buildout. If you own AI stocks, stress-test them for customer concentration and related-party transactions. Use the 5-part test from our related article to gauge vulnerability.
