AI Bubble: Nvidia’s $350B OpenAI Loan is Scaring Investors | Ed Zitron

**John Johnston** (0:00)
Hi, everyone, JJ here. Welcome back to The Lounge. Well, today is Nvidia's circular financing, and indeed the circular financing going on with a lot of companies in this AI bubble. Are investors starting to get really concerned about this? It does seem so.
So this is the first video on this today. We're gonna hear from Ed Zitron about this, and then four hours later, I'll publish a video as a follow up to this about the Korean market, how it crashed and lots of leverage going on there. So look out for that one too. Could it spread as a domino effect to the US.? People aren't seem to be taking much notice of this.
But Nvidia, yes, these circular financing deals are getting huge. So we're gonna have a look at today, this one from Ed. Nvidia's $350 billion OpenAI loan is scaring everyone. Well, for those paying attention. But also, this one, Nvidia, is keeping CoreWeaver live but barely. So this is one of the Neo clouds. And this is what a few investors like George Noble have been criticizing. And Ed Zitron as well, that the circular financing going on with these. And what is actually going on here? So we're gonna look at that and what is to be concerned about? Could this be the trigger, one of the triggers? I mean, the Korean market was one, lots of leverage, that's one. But the circular financing, if you're not sure what that's all about, let's get into it today, because this could have major impacts as coming down the line possibly. It's not good.

**Ed Zitron** (1:35)
It really isn't about, and never has been about what LLMs could do. It's about the perception of AI's potential. And thus, what extrapolations you can make from that to... It really isn't about, and never has been about what LLMs could do. It's about the perception of AI's potential. And thus, what extrapolations you can make from that to sell something, to pump a stock, to sign a deal. This is financial innovation. This is getting around accounting rules that really need updating. But that's the AI bubble. The AI bubble is just a series of different ghost stories used to ignore financials. The market dumped Nvidia on this, because I think they've begun to realize that, oh, is Nvidia propping up its own revenue? At this point, investing in Nvidia is a bet on how long the debt markets will support AI. People are going to go, how did that happen? What happened? The answer is, no one wanted to look at the truth.

**John Johnston** (2:30)
So he mentioned Nvidia there, the stock. Well, if we look at the year to date, I mean, it did have a dip. So people, I think, starting to get worried about this or the AI trade, let's call it in general. So it went down nearly 20 percent, but it's gone back up just in the last session. It's spiked back up. So could it go for another big rally? We'll have to see. If we pull back five years, we can see that 20 percent, it's had a lot of 20 percent pullback. So nothing major there yet. But as I've said in other videos, the memory stocks and semiconductor stocks have taken a dive after just a parabolic rise. And of course, the Korean market. The other thing, of course, that I've made a video about is Leopold Aschenbrenner's fund, AI fund. It was highly leveraged and it came completely unstuck last week, which made big news. And so it's the leverage that is the problem here. But also people have been talking about under the surface here, this circular financing and these deals are massive. It started off being, people talking about it, being a bit concerned about it, but the deals are getting massive. Can it ever be recouped?

**John Johnston** (3:43)
Ed Zitron, thanks for coming on.

**Ed Zitron** (3:45)
Thanks for having me.

**John Johnston** (3:46)
Circular financing is back and it's better than ever, by which I mean, it looks like it's going to be getting a few hundred billion dollars worse than it already is. As Nvidia has offered to backstop OpenAI for $250 billion, so SoftBank can build Sam Altman and another data center.

**John Johnston** (4:04)
So this is a huge amount of money. Let's not skip over there. We're kind of used to hundreds of billions now when talking about the AI and the AI data center build out, but these are massive numbers.

**John Johnston** (4:16)
And on top of that, Nvidia is discussing a deal to finance $350 billion in GPUs to go inside that data center. The big question is, obviously, why is Nvidia doing this?