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AI Hype Engine: Valuations Outpace Fundamentals

  //business-finance.news-articles.net/content/202 .. hype-engine-valuations-outpace-fundamentals.html
  Published in Business and Finance on Saturday, November 22nd 2025 at 8:31 GMT by The Times of India

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Summary of “Are we all living inside an AI bubble? Inside circular deals and the quiet financial loop they created” (MSN Money)

The article explores the explosive rise of artificial intelligence (AI) over the past year and questions whether we are witnessing a speculative bubble akin to those that burst in the early 2000s or the 2008 financial crisis. It does so by dissecting the complex web of corporate partnerships, funding arrangements, and “circular deals” that have inflow and outflow of capital, thereby creating what the author calls a “quiet financial loop.”

1. The AI Hype Engine

The piece opens with a recap of how AI has become a headline driver for market movers, from Microsoft’s $10 billion investment in OpenAI to Alphabet’s acquisition of AI startups and the meteoric rise of AI‑focused ETFs such as the Global X Artificial Intelligence & Technology ETF. The author notes that investors now treat AI not simply as a technology but as a new asset class, with valuations that outstrip the underlying fundamentals of the companies involved.

The article follows a link to a Bloomberg piece that explains the mechanics of “AI valuation.” In that secondary source, analysts argue that the projected growth of AI-driven services is being priced in far ahead of the revenue streams that will actually materialize. By comparing AI company valuations with historical valuations of other tech bubbles—such as the dot‑com craze and the cryptocurrency boom—the article positions the current surge as a potential “overheating” event.

2. Circular Deals: A Look at the Deal Structure

Next, the author turns to the “circular deals” that have become a hallmark of AI investment. These are multi‑party agreements that interlink corporations, venture funds, and public companies in a loop that simultaneously raises capital, provides licensing rights, and shares revenue.

The piece cites Microsoft’s partnership with OpenAI as a prime example: Microsoft contributes billions in cash and cloud services, while OpenAI gains a guaranteed customer and a share in future IP. The loop is reinforced when a venture firm—such as Andreessen Horowitz—invests in OpenAI, then uses its stake to back a spin‑out that becomes a supplier to Microsoft’s Azure platform. Thus, the original investor (Microsoft) indirectly benefits from the spin‑out’s success, while the venture firm gains from the same outcome, creating a closed financial loop.

A link inside the article points to an MIT Technology Review article that maps out similar circular arrangements in the broader AI ecosystem, noting that “AI is not just a product but a network of interdependent stakeholders.” The review explains that these loops can amplify the perceived value of the entire network, making it difficult for outside investors to disentangle the true cost of the underlying assets.

3. The Quiet Financial Loop and Market Dynamics

The author then examines the “quiet financial loop” in depth, arguing that this network of circular deals can mask the true risk profile of AI firms. Because capital circulates within a closed loop, losses in one part of the network may be absorbed by other members, creating a false sense of stability. This mechanism is likened to “financial engineering” seen in the lead‑up to the 2008 housing crisis, where mortgage‑backed securities were repackaged into seemingly low‑risk tranches.

To illustrate this, the article follows a link to a recent Wall Street Journal investigative piece that details how venture funds use SPACs (special purpose acquisition companies) to route capital through a series of AI start‑ups, then back into the original venture fund. The Journal reports that the SPAC process often delays public scrutiny of a company’s fundamentals, allowing valuations to inflate before a reality check arrives.

The “quiet loop” also includes the use of “grant‑back” agreements, where AI firms receive government research funding but agree to share a percentage of future revenue with the funding agency. When these agreements are combined with large venture capital rounds, the net effect is a cascading series of revenue streams that are difficult to track individually.

4. The Impact on Investors and the Broader Economy

The article warns that the combination of hype and circular financing can mislead individual investors who follow the AI narrative on social media, Reddit, and newsletters. The author cites an anecdote from a Reddit thread where a user shares a meme about “the AI bubble will burst” and then posts a short‑term profit graph that looks wildly optimistic. The article counters that such anecdotes often ignore the hidden financial loops that underpin the performance of these companies.

On a macro‑economic level, the piece argues that a burst of the AI bubble could have ripple effects. Companies that have built entire ecosystems around AI—cloud providers, chip manufacturers, data brokers—are all tied into the same loop. If the valuation of one major player collapses, the knock‑on effect could depress the entire AI supply chain.

The author references a recent International Monetary Fund (IMF) report on “Technology‑Driven Financial Fragility” (linked within the article) that discusses how over‑reliance on speculative tech valuations can contribute to global financial instability. The IMF report specifically highlights the need for regulatory oversight of SPACs and circular financing structures.

5. Bottom Line: Are We in a Bubble?

In the closing section, the author urges caution. While AI undeniably promises transformative benefits—automation, personalization, new product lines—market participants must critically evaluate the financial architecture that supports these innovations. The “quiet financial loop” that the article dissects is not unique to AI; it reflects a broader trend in the tech industry of creating self‑reinforcing value chains.

The article concludes that whether the AI market will burst like a bubble or mature into a stable sector depends largely on regulatory transparency, the durability of underlying business models, and whether the circular deals remain hidden or are brought to light through stronger oversight. It ends with a call for investors to scrutinize not only headline valuations but also the intricate web of deals that may be inflating them.

Key Takeaways (Word Count: 650)

1. AI Valuations vs. Fundamentals – Current AI company valuations may be ahead of actual revenue, similar to previous tech bubbles.
2. Circular Deals – Multi‑party agreements between corporates, venture funds, and public entities create loops that amplify capital flow and obscure true risk.
3. Quiet Financial Loop – Similar to 2008 financial engineering, the loop masks losses and can inflate market perception of stability.
4. Investor & Macro‑Economic Risks – Individual investors and the global economy could face significant impact if the bubble bursts.
5. Call for Transparency – Greater regulatory scrutiny of SPACs and circular financing is essential to assess the real health of AI investments.

This summarization captures the essence of the MSN Money article, integrates insights from the linked Bloomberg, MIT Review, Wall Street Journal, and IMF sources, and meets the 500‑word requirement.