Did Nvidia repeat Cisco's mistake and build a house of cards with its investment in OpenAI?

September 28, 2025 — 04:15 am EDT Written by Geoffrey Seiler

Key Points

• Nvidia's investment of $100 billion in OpenAI will drive the growth of its chips.
• However, the company is basically funding OpenAI to buy its own chips.
• This is similar to what Cisco did during the internet bubble before it burst.

The recent news that Nvidia will invest up to $100 billion in OpenAI is being hailed as a massive bet on the future of artificial intelligence. But we should take a closer look at what is really happening. The money that OpenAI will receive will ultimately come back directly to Nvidia in the form of hardware purchases, mainly through Oracle's cloud expansion, where both companies recently signed a colossal deal of $300 billion.

OpenAI plans to implement Nvidia systems that require 10 gigawatts of power, equivalent to about 4-5 million GPUs. To put it in perspective, this is roughly the same total number of GPUs that Nvidia will ship this year. The first $10 billion of Nvidia's investment will be deployed as soon as the first gigawatt of capacity is operational, and the rest will be rolled out in phases as new data centers come online.

Circular financing

On paper, the investment in OpenAI secures billions in future demand. But remember that Nvidia is helping to finance one of its largest customers to keep buying its chips. This is called circular financing.

Nvidia is essentially funding its own demand. It's exactly what Cisco did during the internet bubble, when it provided credit to telecommunications companies so they could buy more Cisco routers. Those sales looked great… until the capital ran out and the whole market collapsed.

It is also a defensive move. More and more major customers of Nvidia are designing their own custom AI chips. Alphabet has its TPUs, Amazon has Trainium and Inferentia, and Microsoft is developing its own chip. OpenAI itself has been developing custom chips to reduce its costs and, before this announcement, placed an order of $10 billion with Broadcom for custom chips that will be delivered next year.

This is the same threat that Nvidia saw develop in the crypto world, where ASICs displaced GPUs for Bitcoin mining. Nvidia doesn't want that to happen again. By investing in OpenAI, it is trying to keep one of its largest customers trapped in its ecosystem.

Is this a house of cards?

There is no doubt that Nvidia is in a dominant position right now, and the deal with OpenAI only strengthens its short-term outlook. But its investment seems clearly a defensive move that adds risk. When Cisco used circular financing during the internet boom, it seemed brilliant… until the customers it was financing went bankrupt.

Both Nvidia and OpenAI are better positioned, but the principle is the same: Nvidia is using its capital to keep demand high. This works as long as the AI boom continues, but it makes the company more exposed if spending slows down or if large cloud providers switch to cheaper solutions.

Nvidia remains the key player in AI infrastructure, but this agreement reminds us that its growth is not without risks. Much of Nvidia's success now depends on a non-profitable company that is bleeding huge amounts of cash that Nvidia is financing. OpenAI has yet to demonstrate a viable business model, and if it fails, this will become a house of cards that will collapse on Nvidia.

I am worried that we are witnessing history repeating itself. Did we not learn anything from the excesses of the dot-com bubble? The market seems blinded by the shine of AI, ignoring the warning signs that are right in front of us. When a company starts to finance its own customers to keep sales high, we must ask ourselves how long this cycle can be sustained before economic reality catches up with us.