Economics

The Circular Economy of AI

Faultlines AI Leadership Council

In late July 2026, Nvidia entered talks to guarantee up to $250 billion of financing so that OpenAI could lease a 10-gigawatt data centre being built on former nuclear-enrichment land in Piketon, Ohio. The project could cost more than $500 billion once the chips inside it are counted, chips that Nvidia are separately discussing how to help finance too. Nvidia's own stock fell almost 5 percent on the day the talks were reported. Investors were not reacting to bad news about demand for AI. They were reacting to a question that is getting harder to avoid: if the AI boom is as real as its backers say, why does the world's most valuable chip company need to guarantee the financing for its own customer's data centre?

That question, asked plainly, is the subject of this article.

The Loop, Traced

Article 2 in this series flagged circular financing as a footnote to the ROI story: analysts now estimate more than $800 billion in arrangements where the same capital effectively travels in a loop between a small number of companies. This piece follows that loop on its own terms, because the structure of the financing tells you something the spending totals alone do not.

The mechanics are not complicated once laid out. Nvidia invests in and supplies OpenAI. OpenAI commits hundreds of billions of dollars to cloud providers such as Oracle and Microsoft. Those providers buy Nvidia chips to build the capacity OpenAI has promised to pay for. Nvidia pledged $100 billion to OpenAI in 2025 and a further $30 billion in early 2026, on top of the Ohio guarantee. OpenAI's own disclosed commitments, across Broadcom, Oracle, Microsoft, Nvidia, AMD, Amazon and CoreWeave, ran to roughly $1.1 trillion through 2035 as of mid-2026. Sam Altman himself had put the figure at $1.4 trillion only months earlier.

That figure is worth sitting with, not for its size but for how much it has moved. In February 2026, OpenAI reportedly told investors it was recalibrating toward a $600 billion compute target by 2030, a marked step down from Altman's earlier number. By July, the figure was back up to roughly $750 billion. A company's own estimate of its capital commitments changing by hundreds of billions of dollars twice within six months is not a rounding adjustment. It is a sign that nobody, including the company making the commitments, has a firm answer to the question a lender asks first: how much will this cost and against what revenue?

OpenAI's revenue sits just above $20 billion. It is on track to lose an estimated $14 billion in 2026, against a valuation of $852 billion.

Using Nvidia's Money to Buy Nvidia Chips

Aleksandar Tomic, associate dean at Boston College, put the mechanism as plainly as anyone has. Speaking to Al Jazeera in July 2026 about the Nvidia-OpenAI-Ohio deal, he said companies including Nvidia, Microsoft and Oracle have invested billions into AI developers only for that same capital to come back to them as revenue when those developers buy their chips and cloud capacity. "They're essentially using Nvidia's money to buy Nvidia chips," he said. He drew a direct comparison to 1999, when technology companies routinely bought from one another to make demand look larger than it was, a pattern that was one contributor to the dot-com collapse the following year. "At some point, the money runs out," he said.

Not everyone reads it the same way. Some investors argue this is simply how large industrial ecosystems finance themselves, no different from any supplier extending credit to a customer who will use it to buy more of the same supplier's product. There is a real argument there. But it depends entirely on the end customer eventually generating enough independent revenue to make the loop self-sustaining rather than self-referential, and on the evidence so far, that is precisely the part still unproven.

Two CEOs, Same Number, Different Angles

What makes this moment different from a normal debate about a hot sector is that two of the most experienced executives in enterprise technology and finance have independently arrived at versions of the same warning, from completely different vantage points, within months of each other.

Arvind Krishna, IBM's chairman and chief executive, laid out what he calls an $8 trillion math problem on The Verge's Decoder podcast in December 2025 and repeated it at Davos in January 2026. Fully outfitting a one-gigawatt AI data centre costs roughly $80 billion, he estimated, and the industry's publicly announced plans point to something like 100 gigawatts of AGI-class capacity. Multiply the two and the industry is on a trajectory toward $8 trillion of cumulative capital spending. "There's no way you're going to get a return on that in my view," Krishna said, "because eight trillion of capex means you need roughly 800 billion of profit just to pay for the interest." His sharpest point is about depreciation, not demand: AI accelerators are typically written down over five years because the hardware is obsolete by then, not thirty or fifty like the infrastructure this capital is being compared to. "You've got to use it all in five years," he said, "because at that point, you've got to throw it away and refill it." Krishna is not an AI sceptic. IBM sells AI software and services. His warning is specifically about the physical economics of the buildout outrunning any plausible return on it.

Jamie Dimon, chief executive of JPMorgan Chase, has been building toward the same conclusion from the financial system side. In February 2026 he told an audience in New York that his "anxiety is high" over AI valuations and a culture of circular investment among the largest AI companies, adding, "there's always a surprise in a credit cycle," and drawing a direct comparison to the run-up to 2008, though he expects the sector hit hardest this time to look different. By August, his language had sharpened further. "Margin debt is the highest it has ever been," he told CNBC, warning that a significant portion of current leverage across markets is hidden inside prime brokerage arrangements, hedge fund structures, ETFs and Treasury arbitrage trades rather than showing up as conventional margin debt. His comments followed the collapse of Situational Awareness, an AI-focused hedge fund whose leveraged bets on the sector triggered margin calls and a forced liquidation of its public equity holdings, a fund JPMorgan itself had brokered for. Dimon has also gone further than commentary. In August 2026 he began personally recruiting more than forty companies, across banking, energy, water and telecommunications, into a cross-industry group examining the risk that increasingly capable AI systems pose to critical infrastructure, calling the danger of unrestricted access to advanced models comparable to "giving ballistic missiles to individuals."

Put the two views side by side and they are not the same argument twice. Krishna is describing a hardware economics problem: the capital cost and depreciation schedule of the physical buildout do not obviously support the returns being promised. Dimon is describing a financial system problem: the leverage financing that buildout is larger and more hidden than headline figures suggest and concentrated enough that a single disorderly event could travel further than its size alone would predict. Two very different jobs, two very different vantage points, and the same underlying concern: that the economics being assumed have not been tested with the rigour that scale of this kind ought to demand.

Where the Risk Actually Lands

For the audience this series is written for, the more urgent question is not whether Krishna or Dimon is right in the abstract. It is where the risk sits once it moves.

Through most of 2025, banks financed the bulk of data centre construction debt. That is changing quickly. Oracle's roughly $300 billion buildout commitment tied to its OpenAI partnership alone pushed several major banks toward their single-counterparty concentration limits, because so much of the recent debt is collateralised against the same small handful of hyperscale tenants: Oracle, Meta, Microsoft, Google, Amazon. Banks are not stepping back because demand looks weaker. They are stepping back because regulatory and internal exposure limits will not let them hold more of the same underlying credit risk. Total AI and data centre capital requirements through the rest of the decade are now estimated at $3 trillion to $5 trillion, a scale no bank balance sheet, or bank syndicate, was ever going to carry alone.

The gap is being filled by private credit funds, Rule 144A bond placements and infrastructure debt vehicles, and the capital behind those instruments traces back to pension funds, insurance company portfolios and endowments. Meta's $30 billion Hyperion data centre campus in Louisiana was financed through a special purpose vehicle that kept roughly $27 billion of debt off Meta's own balance sheet while still delivering investment-grade cash flow to bondholders. The structure insulates Meta. It does not insulate the pension fund or insurance portfolio that bought the bonds if the underlying tenant relationship, power delivery timeline or permitting position turns out weaker than modelled. The Bank for International Settlements flagged exactly this in July 2026: financing for the AI buildout is increasingly concentrated in institutions that carry none of a bank's capital requirements or resolution mechanisms, meaning project failure risk now flows directly to the institutional investors holding the paper.

The credit market is already pricing some of this. CoreWeave's $2.6 billion term loan closed in late July 2026 at 550 basis points over SOFR, 125 basis points wider than the original price talk, a clear signal that lenders are no longer willing to absorb every covenant-light term the sector had grown used to.

For a bank, insurer or asset manager reading this series, the honest question is no longer whether you are exposed to the AI buildout. It is whether you know exactly how, and through which instrument.

The Economics Fault Line

This is precisely the layer the Economics fault line is built to test inside a Fault Lines Leadership Review, one level beneath the enterprise ROI question Article 2 raised: not only whether an institution's own AI investment pays back, but whether it holds, directly or through a fund, a securitisation or an insurance portfolio, exposure to the financing structures underneath the wider AI buildout, and whether that exposure was underwritten against assumptions that were still current six months ago.

If you want to understand your institution's exposure to the financing behind the AI boom, not just your own AI spending, we will walk you through it directly. Email confidential@faultlines.group

Sources

  • Wall Street Journal, first reporting on Nvidia's talks to guarantee up to $250bn of financing for OpenAI's Ohio data centre lease, and Al Jazeera coverage, 27 July 2026.
  • Aleksandar Tomic, Boston College, quoted in Al Jazeera, 27 July 2026.
  • Reporting on OpenAI's evolving infrastructure commitments: approximately $1.4 trillion cited by Sam Altman in late 2025; CNBC, "OpenAI resets spending expectations, tells investors compute target is around $600 billion by 2030," 20 February 2026; subsequent reporting raising the figure to approximately $750 billion through 2030, July 2026.
  • Carnegie Investment Counsel and other analyses of OpenAI's approximately $1.1 trillion in disclosed vendor commitments across Broadcom, Oracle, Microsoft, Nvidia, AMD, Amazon and CoreWeave, 2025 to 2026. Reporting on OpenAI's revenue, projected 2026 loss and valuation, 2026.
  • Arvind Krishna, IBM Chairman and CEO, The Verge, Decoder podcast, 3 December 2025, and subsequent remarks at the World Economic Forum, Davos, January 2026, as reported by Tom's Hardware and FinancialContent.
  • Jamie Dimon, JPMorgan Chase CEO, remarks reported by CNBC and Moneywise, 23 February 2026 ("my anxiety is high"); CNBC interview with Leslie Picker on margin debt and hidden leverage, 6 August 2026; Reuters reporting on Dimon's Alliance for Critical Infrastructure outreach and "ballistic missiles" remark on Anthropic's Mythos model, 5 August 2026.
  • Reporting on the collapse of the Situational Awareness hedge fund and its AI-related margin calls, July to August 2026.
  • Reporting on bank concentration limits, the shift of data centre debt financing to private credit, Rule 144A bonds, pension funds and insurance portfolios, including the Bank for International Settlements' July 2026 systemic risk research on AI infrastructure financing, and CoreWeave's July 2026 term loan pricing, Tech Times and Leech Tishman analysis, August 2026.
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