Circular deals artificially inflate AI growth
The guest argued that circular funding deals—where cloud providers fund AI startups specifically to spend that capital back on the provider's cloud services—are artificially inflating growth rates and increasing the risk of a market correction.
The argument
The guest pointed out that massive burn rates (up to $5 billion a year) make it incredibly difficult for these startups to evaluate their true unit economics, creating a highly fragile environment reminiscent of the dot-com era.
The thesis, stress-tested
✓ What validates it
- ✓A sharp decline in cloud revenue growth from AI startup clients
- ✓Public write-downs of venture investments by major cloud providers
▸ Risks discussed
- ▸Startups successfully finding sustainable unit economics before funding runs out
- ▸Continued capital injection from parent cloud providers preventing a correction
Hear it yourself
"around Wall Street and stocks. And so, you know, that starts with Peter Lynch, One Up on Wall Street, you know, best selling book, probably the first book I read about investing, A Random Walk Down Wall Street, Burton MacKay, all the Buffett letters, You know? Ben Graham. Once you read Buffett, you have to read Ben Graham. And so and then Howard Marks, who's just incredible. And you were talking about the purpose of your podcast. Those those people have spent their whole career assembling their thoughts and publishing them, you know, along the way."
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