Investors should beware of AI’s circular financing trap, look for alternatives like Broadcom

The AI gold rush has investors cautious that the industry may be feeding itself through a risky cycle of circular financing.

“I would be cautious on the financing aspect of OpenAI, the circular financing,” Miramar Capital co-founder Max Wasserman told Yahoo Finance’s Opening Bid. “Given the concentration, you need to diversify the portfolio, and you need to understand what you own and what happens if you’re wrong.”

He added that if the AI trade “goes south, it’s going to take the indices with it.”

An example of this cycle is where Big Tech titans invest billions into AI startups, which then use that money to buy cloud services or hardware from said investor. For instance, OpenAI (OPAI.PVT), Yahoo Finance’s 2025 Company of the Year, committed to buying 10 gigawatts of Nvidia’s (NVDA) chips, while Nvidia intends to invest up to $100 billion into the startup.

Wasserman warned that these deals could mask cash burn. “The stock market…