Wall Street Divided on Nvidia and OpenAI: AI Ecosystem Masterstroke vs. Next Cisco Bubble?

TradingKey - Since September, a series of cross-investments and partnerships among major AI tech giants have unveiled a capital game that is as exciting as it is puzzling: OpenAI buys cloud capacity, Oracle buys chips, and Nvidia reinvests in OpenAI — forming an almost perfect “AI Circle.” But echoing the cautionary tale of Cisco’s “vendor financing” bubble, Wall Street is sounding alarm bells.

Recent multi-hundred-billion-dollar deals between OpenAI, Nvidia, and Oracle have created a triangular ecosystem encompassing large models, cloud infrastructure, and computing chips. The business chain works like this:

• OpenAI, the world’s leading AI startup, purchases cloud services from Oracle
• Oracle, as infrastructure provider, builds data centers requiring massive volumes of Nvidia GPUs
• Nvidia, having earned profits, strategically invests part of them back into OpenAI

In this seemingly flawless “AI Circle”, questions remain about OpenAI’s long-term stability, given it is still years away from profitability and faces intensifying competition from Google and Anthropic.

Some analysts describe this “ONO” alliance (OpenAI-Nvidia-Oracle) as a high-stakes, “chained-together” bet — where success is mandatory, and failure could unravel the entire structure.

A Replay of the Cisco Bubble?

The “invest in your customer so they can buy your product” model — dubbed “vendor financing” — draws direct parallels to Cisco’s strategy during the dot-com boom. Back then, Cisco extended loans, equity investments, or credit lines to telecom clients, who used the funds to purchase Cisco equipment.

When the internet bubble burst, many clients couldn’t sell their inventory or repay debts, leaving Cisco with massive bad loans and write-downs.

Rich Privorotsky, Head of Delta One Trading at Goldman Sachs, said:

“Vendor financing was a feature of that era and when when the telecom equipment makers (Cisco, Lucent, Nortel, etc.) extended loans, equity investments, or credit guarantees to their customers who then used the cash/credit to buy back the equipment… well suffice it to say, it did not end well for anyone.”

Meyer, a tech trader at JPMorgan, echoed that when a company pays its customers to buy its own products, it’s usually not a good sign.

The Australian Financial Review quipped:

“One firm invests $100bn in the other, so it can buy $100bn of chips made by the investor. Welcome to artificial intelligence’s circular economy.”

ZeroHedge called it “accounting magic” — not yet as catastrophic as the off-balance-sheet schemes that brought down Enron, but increasingly risky as attention grows.

“The more people notice, the closer we get to the tipping point.”

Still, Most See Strength in the Alliance

Despite concerns, most analysts remain bullish on the strategic value of these partnerships, citing:

• AI’s continued rapid growth
• High revenue visibility for Nvidia and Oracle
• OpenAI’s still-dominant technological position

For Nvidia, securing OpenAI as a long-term anchor tenant locks in massive demand. OpenAI’s choice reinforces confidence in GPU-based AI, not the ASIC path championed by Broadcom.

Bank of America estimates that Nvidia’s $100 billion investment in OpenAI could generate $500 billion in future revenue for the chipmaker.