BIS report: 55% of AI investment is circular, echoing Lucent-Nortel era risks

rohanpaul_ai · x · 2026-10-03

A new Bank for International Settlements (BIS) report examines circular financing among AI companies.

Peers fund peers: between 2021 and 2025, other AI companies supplied 55.2% of AI firms' incoming investment value, while AI investors sent 28.7% of their own deal value to AI targets.
Rare but big: only 16.1% of AI-to-AI deals involved firms that also trade with each other, yet those deals held 46.4% of the money — partly inflated since a whole round counts as circular if just one AI investor also trades with the company.
Chip/cloud suppliers dominate: they are the investor in 73% of circular ties, and in 64% the investor also sells to the firm it funds. Data-tool and model makers rarely invest this way.
Why AI is prone to this: suppliers can track customers' compute use, chips and data centers are custom-built, and capital needs exceed normal lenders. 15.2% of supplier-customer ties in AI compute/cloud also involve financing, vs 3.3% in a broad 2006 US study.
Lucent/Nortel parallel: some AI sales are effectively paid for by the sellers themselves — like Lucent and Nortel in the late 1990s, who lost money on loans and sales when telecom customers stalled.
Double-loss risk: a supplier investing in its customer loses both the stake and future orders if the customer struggles; a shock at a few giant suppliers could spread through sales and finance simultaneously.
Hidden exposure: many firms are private, deals mix cash with long-term purchase promises, chip-value pledges stay off the books, and the firms span sectors and countries — no single regulator sees the full picture. The report names no companies or overall dollar total.

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BIS report: 55% of AI investment is circular, echoing Lucent-Nortel era risks

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