Circular financing ain’t what it used to be

Nvidia is falling. The mood has changed.

Circular financing ain’t what it used to be

TL;DR

  • Oracle's $300 billion deal with OpenAI, announced nine months prior, was initially met with market enthusiasm but later revealed to be based on circular financing, causing Oracle's stock to plummet.
  • A new potential $250 billion Nvidia backstop for an OpenAI-led data center has been met with significant market skepticism, unlike the Oracle deal.
  • Nvidia's stock has dropped sharply following the news, indicating the market views the potential deal as a sign of desperation from both parties.
  • Apple has overtaken Nvidia in market value, and SpaceX, a company attempting to position itself in AI, is experiencing a significant stock decline.
  • Creditors are becoming cautious, and the reliance on 'creative financing' and off-balance-sheet arrangements suggests the GenAI boom may not be sustained by profits alone.

Nine months ago, on September 10, 2025Oracle announced what seemed to many to be the deal of the century! A $300 billion deal with OpenAI.

The market went wild. Oracle stock briefly went up by 43% (and ultimately even a bit higher). Larry Ellison’s net worth briefly leapt by $100 billion. TheWall St. Journalgushed:

The whole thing never made sense though. The next morning, inn an essay calledPeak BubbleI warned that

Yet Oracle continued to rise!

But not for long. Its stock stood at $307 per share at the close of trading on September 10, and briefly closed as high as $328 ten days later. Now, as I write this, it’s hovering around $120.

In the intervening nine months, the market has grown wary of all this circular financing stuff. Mocking illustrations like this one (from yesterday) have become widespread:

@MikeZaccardiit's mostly circular accounting tricks, there are no fucking earnings m8 ","username":"Minointerista","name":"permabera","profile_image_url":"https://pbs.substack.com/profile_images/1634272917012791296/nk8tnTfN_normal.jpg","date":"2026-07-26T20:11:33.000Z","photos":[{"img_url":"https://pbs.substack.com/media/HOLgIS1WkAAe-TR.jpg","link_url":"https://t.co/3zeVMSISyd"}],"quoted_tweet":{},"reply_count":4,"retweet_count":0,"like_count":20,"impression_count":777,"expanded_url":null,"video_url":null,"video_preview_media_key":null,"belowTheFold":true}" data-component-name="Twitter2ToDOM">

§

All of which brings me to the present. Yesterday, news broke that Nvidia is considering offering a $250 billion backstop for an OpenAI-led data center. Which led last night to considerable skepticism

and this morning led to a dramatically different reaction from the market, nothing like the bounce like Oracle had back in September. Instead, in the first couple hours of trading Nvidia is down over 4.5%:

The market isn’t reading the latest potential Nvidia-OpenAI deal as good news; they are reading it as desperation. As one investor put it to me in an email this morning, “[the deal] seems incredibly desperate by both parties. Two drunks leaning on each other to stand up.”

§

Meanwhile, Apple, the butt of jokes for a while because “it didn’t invest in enough AI” just overtook Nvidia

and SpaceX, which tried to position itself as an AI company is in free fall, dropping over 3% today, and by over 25% in the last month, more than 50% from its June high of 225:

§

Meanwhile, creditors are getting pretty leery of the whole thing, too, asAxios just reported:

And then there’sall the off-balance-sheet financing that is coming to light. And the sudden need for so-called “creative financing”. If that’s not a warning sign, I don’t know what is.

The GenAI boom hasn’t been sustained by profits; it has been sustained by hope and circular financing. That may no longer be enough.

Subscribe now

Update:just made an important additional point I should have made: