AI Today: When the chip sellers buy the customer's shares

Nvidia, AMD and Broadcom sell Meta the chips for its data centres. This week, Reuters reported, all three told Meta they might buy up to $5 billion of its shares.

AI Today is a series from Fíor, a natural language classifier that predicts whether a piece of text was more likely written by a person or by AI. Each piece explains one development in AI and shows where the claims come from.

Meta plans to raise up to $95 billion, in what Reuters called its largest equity fundraising ever. About $35 billion would come first, in ordinary and convertible preferred shares, followed by a sale programme of up to $60 billion once its new non-voting shares start trading. It follows Alphabet, which raised a record $84.75 billion by selling shares in June.

The pattern is new for these companies. For years, the biggest technology firms paid for their expansion mostly with their own cash. Now they are borrowing and selling shares to keep up with the cost of AI.

The scale is hard to picture. Bloomberg reported that Meta has signed up to about $825 billion in future leases and contracts, much of it for computing power. Around $355.7 billion of those leases have not started yet, so they do not appear on its balance sheet. Some run until 2036.

Money going round in a circle

When a supplier puts money into a customer that then spends it on the supplier's products, critics call it circular financing. It is not new to Meta. Earlier this year, Meta agreed to buy up to six gigawatts of AMD's AI chips, in a deal that also gave Meta the option to take shares in AMD. Now the money could flow the other way too.

There are two ways to read it. The worrying one is that it makes demand look stronger than it would on its own. If part of the money paying for chip orders comes from the chipmakers, those orders are partly propping themselves up, and if the customer slows down, both sides feel it at once.

The other reading is simpler. Five billion dollars is a small share of a $95 billion raise, and companies that know Meta's plans better than anyone are willing to back them. That is a vote of confidence as much as a circle.

Not everyone can raise the money

Elon Musk said SpaceX had "closed" $40 billion of debt, mostly to pay for chips arriving next year. Reuters noted it was not clear what he meant by closed, or whether the terms were final. Musk also warned that borrowing has become much harder for companies that rent out AI computing power without other businesses behind them, and predicted those companies will consolidate.

So the giants can still raise money, by selling shares, borrowing, or taking it from their own suppliers. The smaller companies building and renting out AI capacity may not be able to.

The question about AI spending used to be how much. This week it was whose money. When part of the answer is the companies selling the chips, the boom is partly paying for itself. That works while orders keep growing. It is also why, if they stop, everyone involved will find out at the same time.

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