A lot of AI money is just a big loop: hardware companies are basically investing in their own customers so they can 'buy' more chips.
While the market sees a surge in organic demand for AI chips, a significant portion is an accounting illusion. Chip vendors are investing in startups specifically so those startups can turn around and buy the vendor's products, creating a feedback loop that masks the actual health of the market.
Strategic Flexibility for Hyperscalers: Lessons from the AI Infrastructure Build-Out
SSRN · 6470961
Despite the exuberance by which they acquired assets to diversify along the value chain of artificial intelligence (AI), the hyperscalers (large-scale cloud providers that offered vast computing, networking, and storage services) faced adverse strategic-flexibility consequences due to prevalent financing and ecosystem practices that raised unforeseen exit barrier issues. First, physical infrastructure (custom silicon, AI-optimized data centers, and long-term take-or-pay electricity contracts) cr