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How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

nytimes.com

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Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#111

Post by _heimdall »

zemvpferreira wrote: post #44
jacquesm wrote: post #17

These kinds of deals were very much a la mode just prior to the .com crash. Companies would buy advertising, then the websites and ad agencies would buy their services and they'd spend it again on advertising. The end result is immense revenues without profits.

There’s one key difference in my opinion: pre-.com deals were buying revenue with equity and nothing else. It was growth for growth’s sake. All that scale delivered mostly nothing. OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go anot…

I think that, at best, that description boils down to Nvidia, Oracle, etc inventing fake wealth to build something and OpenAI building their own fake wealth by getting to use that new compute effectively for free.

There are physical products involved, but the situation otherwise feels very similar to ads prior to dotcom.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#112

Post by gdulli »

crazygringo wrote: post #39

This is such a strange article -- there's nothing particularly unusual going on here. The first example basically stands in for all of them -- Microsoft invests $13B in OpenAI, and OpenAI spends $13B on Azure. This is literally just OpenAI purchasing Microsoft cloud usage with OpenAI's stock rather than its cash . There is nothing unusual, illicit, or deceptive about this. This is entirely normal. You can finance you…

Sometimes additional context can take the same action that looks harmless in a vacuum and turn it into a bad idea or even a crime!

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#113

Post by delis-thumbs-7e »

api wrote: post #95
zemvpferreira wrote: post #44

Earlier quoted context omitted.

There’s one key difference in my opinion: pre-.com deals were buying revenue with equity and nothing else. It was growth for growth’s sake. All that scale delivered mostly nothing. OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go anot…

The assumption is that they have a large moat. If they don't then they're spending a ton of money to level up models and tech now, but others will eventually catch up and their margins will vanish. This will be true if (as I believe) AI will plateau as we run out of training data. As this happens, CPU process improvements and increased competition in the AI chip / GPU space will make it progressively cheaper to train…

Apple new M5 can run models over 10B parametres and if they give their new Studio next year enough juice, it can run maybe 30B local model. How long is it that you can run a full GPT-5 on your laptop or homeserver with few grands worth of hardware? What is going to happen to all these GPU farms, since as I understood they are fairly useless for anything else?

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#114

Post by powerhouse007 »

J_McQuade wrote: post #96
Arkhaine_kupo wrote: post #61

Earlier quoted context omitted.

> they’re using their equity to buy compute that is critical to improving their core technology But we know that growth in the models is not exponential, its much closer to logarithmic. So they spend =equity to get >results. The ad spend was a merry go round, this is a flywheel where the turning grinds its gears until its a smooth burr. The math of the rising stock prices only begins to make sense if there is a possi…

There is something about an argument made almost entirely out of metaphors that amuses me to the point of not being able to take it seriously, even if I actually agree with it.

As much as I dislike metaphors, this sounded reasonable to me. Just don't go poking holes in the metaphor instead of the real argument.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#115

Post by jimbokun »

philipwhiuk wrote: post #48
SubiculumCode wrote: post #29

Given that AI is a national security matter now, I'd expect the U.S.A to step in and rescue certain companies in the event of a crash. However, I'd give higher chances to NVIDIA than OpenAI. Weights are easily transferrable and the expertise is in the engineers, but ability to continue making advanced chips is not as easily transferred.

If they're too-important-to-fail they're too important not to be broken up or nationalised.

While that is a sensible opinion the 2008 crash showed that it is not the opinion of decision makers in the US.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#116

Post by [deleted] »

crazygringo wrote: post #71
Eisenstein wrote: post #60

Earlier quoted context omitted.

The bubble part is that nvidia is getting revenue from people investing money in their hardware in order to sell something that has not yet been shown to be profitable. If it turns out no one can make enough money selling AI generated data to justify the costs spent on the compute needed to generate it at the current rate, then what nvidia are selling becomes much less valuable, and the whole thing collapses. We have…

But that has nothing to do with the arrangement of deals here. If it's a bubble, then it will pop. If it's not a bubble, then all these investments will turn out to be great. But that's a different question. The point is, all these deals happen all the time. They're not some kind of sign of a bubble. They happen just as much in non-bubbles. They're just capitalism working as usual.

[deleted]

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#118

Post by bwfan123 »

crazygringo wrote: post #71
Eisenstein wrote: post #60

Earlier quoted context omitted.

The bubble part is that nvidia is getting revenue from people investing money in their hardware in order to sell something that has not yet been shown to be profitable. If it turns out no one can make enough money selling AI generated data to justify the costs spent on the compute needed to generate it at the current rate, then what nvidia are selling becomes much less valuable, and the whole thing collapses. We have…

But that has nothing to do with the arrangement of deals here. If it's a bubble, then it will pop. If it's not a bubble, then all these investments will turn out to be great. But that's a different question. The point is, all these deals happen all the time. They're not some kind of sign of a bubble. They happen just as much in non-bubbles. They're just capitalism working as usual.

These deals happen all the time. The case for a bubble is the following.

When Microsoft offers cloud-credits in exchange for openai equity, what it has effectively done is to purchase its own azure revenues. ie, a company uses its own cash to purchase its own revenues. This produces an illusion of revenue growth which is not economically sustainable. This is happening for all clouds right now wherein their revenues are inflated by uneconomic ai purchases. This is also happening for the gpu chip vendors as well, wherein they are offering cash or warrants to fund their own chip sales.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#119

Post by schwarzrules »

trollbridge wrote: post #79
belter wrote: post #58

Earlier quoted context omitted.

> Everything seems to indicate that once the models are trained, they are extremely profitable Some data would reinforce your case. Do you have it? Here is my data point: "You Have No Idea How Screwed OpenAI Actually Is" - https://wlockett.medium.com/you-have-no-idea-how-screwed-ope...

Right. As far as I can tell, OpenAI, Grok, etc sell me tokens at a loss. But I am having a hard time figuring out how to turn tokens into money (i.e. increased productivity). I can justify $40-$200 per developer per month on tokens but not more than that.

I'm not trying to be annoying, but surely if you'd justify spending $200/developer/month, you could afford $250/month...

The reason I wonder about that is because that also seems to be the dynamic with all these deals and valuations. Surely if OpenAI would pay $30 billion on data centers, they could pay $40 billion, right? I'm not exactly sure where the price escalations actually top out.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#120

Post by afavour »

Spooky23 wrote: post #9
Flockster wrote: post #4

Okay, that article is a little bit shallow. I just summarises the headlines of the last weeks of circular deals. But is there also a more in depth article that sheds a little more light onto what this actually means? From a financial perspective?

It’s probably hard to do that in a news context because the real rationales are pretty tight. Depending on your POV OpenAI and the surrounding AI hype machine is at the extremes either the dawn of a new era, or a metastasized financial cancer that’s going to implode the economy. Reality lies in the middle, and nobody really knows how the story is going to end. In my personal opinion, “financial innovation” (see: the…

> Depending on your POV OpenAI and the surrounding AI hype machine is at the extremes either the dawn of a new era

Eh, in a way they're not mutually exclusive. Look back at the dot com crash: it was all about things like online shopping, which we absolutely take for granted and use every day in 2025. Same for the video game crash in the 80s. They are both an overhyped bubble and and the dawn of a new era.

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