Amid increasing volatility in global stock markets, the 'AI bubble theory' is emerging as a cause, with 'circular deals' being highlighted as a core basis of this theory. Circular deals refer to transactions where AI companies invest in each other and use that investment to purchase AI chips, among other things. For instance, Nvidia announced an investment of up to $100 billion (approximately KRW 147 trillion) in OpenAI, and OpenAI uses that investment to purchase millions of Nvidia's AI chips.

Proponents of the AI bubble theory express concern that if a specific company entangled in the circular deal ecosystem experiences poor performance, AI companies could face cascading difficulties, potentially bursting the bubble. In contrast, growth advocates argue that circular deals lead to a virtuous cycle, resulting in the substantial expansion of the AI ecosystem.

● Nvidia-OpenAI-Oracle, Web-like Transactions

According to the Korea Exchange on the 23rd, the KOSPI index last week (17-21) experienced a rollercoaster of sharp declines and rebounds, ultimately closing with a 3.95% decline. The Nasdaq index, centered on tech stocks, also fell 2.74% last week and 6.12% this month. The stock market volatility index surged as well.

Despite Nvidia's strong performance, concerns about AI companies' stock being overvalued have intensified. Michael Burry, the real-life model for the protagonist of the movie 'The Big Short', pointed out on his X (formerly Twitter) account on the 20th (local time), the day after Nvidia's earnings announcement, that "all the listed companies have questionable revenue recognition," and suggested that "in the future, this will be considered fraud rather than a virtuous cycle." He was targeting these companies' circular deals as 'fraud'.

In reality, AI companies have established a web-like circular deal ecosystem. The issue of circular deals arose in September when Nvidia announced a $100 billion investment in its client OpenAI. In the same month, OpenAI signed a $300 billion (approximately KRW 442 trillion) contract to receive cloud services from Oracle. Subsequently, Oracle announced it would purchase $40 billion (approximately KRW 59 trillion) worth of Nvidia AI chips to operate its data centers. The funds Nvidia invested in the still loss-making OpenAI are returning to Nvidia via Oracle.

Equity transactions are also intertwined. Microsoft (MS), which provides cloud services, holds a 27% stake in OpenAI, and OpenAI is a major customer of MS's cloud services. Nvidia holds a 5% stake in CoreWeave, a company specializing in AI data centers, which purchases Nvidia chips to lease data centers to AI companies.

If AI companies like OpenAI and Anthropic start turning a profit, it could lead to a virtuous cycle. However, the problem is that if deficits persist and an issue arises with one party, it could hinder each other. The Wall Street Journal (WSJ) noted that "if the spending enthusiasm on data centers wanes, companies like Nvidia and MS could face a double blow."

● 'AI Bubble Theory Tug-of-War' Likely to Continue for Some Time

AI growth advocates, including Nvidia CEO Jensen Huang, argue that AI circular deals are creating real value, such as building data centers, unlike during the dot-com bubble. CEO Huang also announced a 62% surge in revenue over the past year, stating, "We have entered a virtuous cycle of AI."

According to The Washington Post (WP), OpenAI revealed that the weekly users of its chatbot, introduced three years ago, exceeded 800 million last month. It took the rapidly growing video platform TikTok five years to reach 1 billion monthly users, but OpenAI is showing faster growth, leading to analyses that profitability is only a matter of time.

While the tug-of-war between AI bubble theory and growth theory continues, experts agree that the adjustment phase is likely to persist for the time being. Lee Hyo-seop, a senior researcher at the Capital Market Research Institute, advised, "Unless there are concrete outcomes, such as medical devices or cars with physical AI, bubble concerns may persist," adding, "The KOSPI could temporarily break the 3,500 mark, so caution is needed." On the other hand, Jeong Yong-taek, a chief researcher at IBK Investment & Securities, stated, "The bubble theory will not easily subside," but also noted, "If prices adjust and the US Federal Reserve resumes interest rate cuts, the stock market could rebound."

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