Good morning. The need for money to build out the infrastructure for AI is pushing the limits of traditional tech funding sources. Many tech companies are private and can’t tap the public markets. And ever-larger funding rounds in venture capital can’t meet all of those needs, either.
AI companies themselves have been filling that need at times. Nvidia will invest up to $100 billion in OpenAI.
There are concerns about such ‘circular’ deals. “If we get to a point a year from now where we had an AI bubble and it popped, this deal might be one of the early breadcrumbs,” Brian Colello, an analyst with Morningstar, told Bloomberg. “If things go bad, circular relationships might be at play.”
AI and data center construction is drawing on massive debt, too. “The financing behind the AI build-out is complex. Debt is layered on at nearly every level,” the WSJ reported. For example, the WSJ said, “Interest rates start above 8% for CoreWeave’s financing on its deals with top tech companies including Microsoft, and far more for upstarts. In all, CoreWeave has around $15 billion of debt.”
There are growing concerns about how long the circle of AI capital will remain unbroken, and what happens if and when it stops. It doesn't mean that the fundamental demand for AI is not there, but it will take years for that demand to turn into sufficient revenue. And the fervor of that demand could be affected by broader concerns about the health of the ecosystem.
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