A lot of AI money is just a big loop: hardware companies are basically investing in their own customers so they can 'buy' more chips.
March 27, 2026
Original Paper
Strategic Flexibility for Hyperscalers: Lessons from the AI Infrastructure Build-Out
SSRN · 6470961
The Takeaway
While the market sees a surge in organic demand for AI chips, a significant portion is an accounting illusion. Chip vendors are investing in startups specifically so those startups can turn around and buy the vendor's products, creating a feedback loop that masks the actual health of the market.
From the abstract
Despite the exuberance by which they acquired assets to diversify along the value chain of artificial intelligence (AI), the hyperscalers (large-scale cloud providers that offered vast computing, networking, and storage services) faced adverse strategic-flexibility consequences due to prevalent financing and ecosystem practices that raised unforeseen exit barrier issues. First, physical infrastructure (custom silicon, AI-optimized data centers, and long-term take-or-pay electricity contracts) cr