The AI giants are selling huge amounts to each other but generating little in real-world profits.
Is the Flurry of Circular AI Deals a Win-Win—or Sign of a Bubble?
How round-trip deals could echo history and hit a wall
By Jonathan Weil, The Wall Street Journal, Oct. 22, 2025
“Circularity” has become a buzzword in artificial-intelligence deals. Some investors have drawn comparisons between the megadeals of today and some excesses of the original dot-com bubble….
Broadly speaking, circular financing often goes something like this: One company pays money to another as part of a transaction, and then the other company turns around and buys the first company’s products or services. Without the initial transaction, the other company might not be able to make the purchase. The funding mechanism could take the form of an investment, a loan, a lease or something else….vendor financing…
Vendor financing still exists. But it isn’t how the bulk of the latest attention-grabbing, circular deals are structured….
[snip descriptions of circular deals shown in the diagram]
Their efforts may pay off enormously if OpenAI and its competitors can ultimately generate strong cash flows to justify all the capital spending. But there also could come a point when investors grow tired of companies pouring so much capital into developing AI models and products, with little visibility into future returns….[end quote]
Considering that the growth of the S&P500 is concentrated in these very companies…and that the bubble is driven by the growth of circular deals…there is a real danger of deflation if cash flow from outside the circle doesn’t start to justify these investments.
Wendy