Circular Financing: Does Nvidia's $110B Bet Echo the Telecom Bubble? Date: October 3, 2025 Author: Tomasz Tunguz, Venture Capitalist at Theory Ventures Categories: AI, SaaS, Data --- Introduction In September 2025, Nvidia announced a $100 billion investment commitment to OpenAI, sparking fears reminiscent of the 2000 telecom bubble. The concern centers on "vendor financing," where suppliers lend money to customers to buy their products. This piece analyzes Nvidia's vendor financing compared to Lucent's telecom-era financing, highlighting similarities and critical differences. --- Historical Context: The Lucent Playbook Peak: Lucent Technologies peaked at $37.92 billion revenue in 1999 (dot-com bubble height). Role: Lucent was the #1 North American telecom equipment manufacturer with 157,000 employees. Vendor financing: Lucent extended $8.1B in loans to customers; Nortel extended $3.1B; Cisco $2.4B. Bubble burst consequences: 47 Competitive Local Exchange Carriers (CLECs) bankrupted between 2000-2003 due to massive overbuild and funding collapse. 33-80% of vendor loan portfolios went uncollected. Fiber networks were used at <0.002% capacity (too early for demand). Outcome: Lucent’s revenue crashed 69% by 2002 and never recovered; merged with Alcatel in 2006. --- Nvidia’s 2025 Vendor Financing Strategy Total financing: $110 billion in direct investments plus $15+ billion in GPU-backed debt. Largest commitment: $100B to OpenAI via 10 tranches of $10B tied to infrastructure milestones. Structure: Financing is via lease arrangements rather than upfront GPU sales. Customer investments: Includes $3B stake in CoreWeave (which spent $7.5B on GPUs), plus $3.7B in other AI startups via NVentures. GPU-backed debt market: CoreWeave and other "Neoclouds" have raised $10B+ in GPU-backed debt at ~14% interest, higher than typical corporate debt. --- Side-by-Side Comparison (2024 dollars) | Metric | Lucent (FY2000) | Nvidia (2025) | |----------------------------|-----------------|------------------| | Vendor financing | $15B | $110B | | Operating cash flow | $304M | $15.4B (Q2 FY26) | | Revenue | $34B | $130B | | Top 2 Customers’ revenue | 23% | 39% | Nvidia’s vendor financing (~85% of revenue) is 4x Lucent’s relative exposure. Lucent’s off-balance-sheet guarantees likely masked higher risk. --- Reasons for Caution High Customer Concentration Nvidia’s top 4 customers constitute 46% of revenue (vs. 23% for Lucent’s top 2). 88% of Nvidia’s revenue comes from AI datacenters. New GPU-Backed Debt Market Based on the assumption that GPUs retain value over 4-6 years, but GPUs last 1-3 years in practice. Depreciation schedules by hyperscalers have extended from ~3 to 6 years, potentially overstating asset useful life. Changing Depreciation Policies Many hyperscalers have lengthened GPU depreciation from 3-4 years to 5-6 years, raising questions about the economic reality behind these policies. Use of Special Purpose Vehicles (SPVs) Hyperscalers co-invest with private equity to build datacenters in off-balance-sheet SPVs (10-30% equity; 70-90% debt). While operational control remains with tech firms, the debt risk transfers to SPV investors. Custom Silicon Threat Companies like Microsoft, Google, Amazon, and Meta are developing their own AI accelerators. This could reduce their dependence on Nvidia GPUs, affecting Nvidia’s collateral and financing risk. --- Differences: Nvidia vs Lucent Accounting Integrity: Lucent engaged in revenue manipulation and fraud, leading to SEC charges; Nvidia is audited by PwC with no evidence of fraud. Cash Flow: Lucent’s cash flow lagged profitability when extending loans.