More on Circular AI Financing

I wanted to make one more point on the circularity, which continues to fly under the radar. 

The revenue quality issue. 

See tweet below: 

1% of companies represent 90% of AI spending.

Of that 90%, 80% of this spend are from unprofitable VC backed companies.

So, roughly, $0.70-75 of every dollar of AI spending right now comes from AI companies spending VC investment dollars.

As a result, the revenue quality in… https://t.co/NB0Y7KRQ1m

— Chamath Palihapitiya (@chamath) October 21, 2026

The circular financing goes well beyond Nvidia ($NVDA)  and others funding their customers. It is also the Venture Capital firms who are financing the consumers of the compute, in the hopes that another greater fool takes them out at a higher valuation. 

These companies that the VCs are financing are consuming the bulk of compute, NOT corporate America, which actually has a balance sheet and sustainable businesses of their own volition. There is no shortage of data coming out that corporate America is finding little utility from AI. In fact the data shows the opposite and it is becoming more clear that AI is just a cost. 

At the end of day, AI is really all sort of an inter-linked Ponzi scheme and money recycling operation, underpinned by public market valuations that I believe have been goosed by Nvidia. The demand for compute is coming from businesses that really should not, and do not need to exist, and are just being financed by VCs that effectively are funneling money to compute infrastructure, in the hopes that valuations remain high and a greater fool takes them out of their investment. 

But most will go the way of Character AI – with $2.7 billion in market capitalization to near zero…  in a heartbeat.

Position: None

• Category: Daily Diary
• Tag: NVDA