Bubble fears mount over Nvidia-OpenAI “circular” deal

Nick Beams

As the surge in the US stock market continues, concerns are starting to develop that the bubble based on the massive investment in AI could burst, as parallels are drawn with the dot-com collapse at the start of the century.

A market collapse today would not be simply a repeat of that experience, significant as it was, because the amounts of money involved are so much greater.

A Nvidia office building in Santa Clara, Calif., May 31, 2023. Jeff Chiu [AP Photo/Jeff Chiu]

Fears of a possible meltdown have been heightened by the recent deal between the leading AI chipmaker Nvidia and OpenAI, which sparked the AI surge with the release of ChatGPT towards the end of 2022.

Under the deal, Nvidia is to invest up to $100 billion in OpenAI to assist it in building massive data centres using Nvidia chips.

The deal is raising questions about the way in which Nvidia is making investments to finance the AI boom to ensure that companies are locked into the use of its chips.

As a recent article on Fortune put it, the “massive data centre build out” has “added to a growing sense of unease that there is a dangerous financial bubble around AI, and that the revenues and earnings math underpinning the valuations of both public and private companies in the sector just doesn’t add up.”

The Financial Times reported that just hours after the Nvidia-OpenAI deal was announced, the global consultancy firm, Bain, released a report which said that AI companies would need to spend $500 billion annually on capital investment to meet anticipated demand. Funding that expenditure would require $2 trillion in annual revenues, but the industry would miss that target by $800 billion.

The scale of the investments is unprecedented. The Nvidia-OpenAI deal calls for “at least” 10GW of computing power. According to the International Energy Agency, 10GW in AI data centres would consume as much energy as consumed in a year by 10 million typical US households.

But there is no certainty about how this massive outlay will be recouped. Last year, OpenAI recorded a loss of $5 billion on $3.7 billion in revenue. This year, according to a report by the business channel CNBC in August, revenue is on track to pass $20 billion. But this is not enough to put the company in the black, and losses are expected to continue.

At that time, CEO Sam Altman told CNBC on the release of ChatGPT-5, “As long as we’re on this very distinct curve of the model getting better and better, I think the rational thing to do is just be willing to run the loss for quite a while.”

In other words, the investment is a massive gamble. Moreover, under conditions where a host of companies are investing in AI, above all the major tech giants Meta, Google, Microsoft and Amazon as well as Nvidia, not all of them will be able to make the sort of profits needed to pay for their investment outlays.

The Nvidia strategy, as exemplified in its deal with OpenAI, is to ensure that however the market develops, its chips, graphic processing units (GPUs), will be at the centre of AI development. Before the latest deal was announced, it had already entered into similar smaller agreements with smaller companies.

The deal with OpenAI is a qualitative leap. Concerns have been raised that it involves “circular” financing of the kind developed in the dot-com bubble, which led to billions of dollars in losses when it collapsed.

Under the agreement, Nvidia will lease its GPUs to OpenAI rather than selling them outright. This means that OpenAI will not have to bear the charge for the high depreciation rates on the chips as new, more powerful ones are developed.

As the Fortune article noted, this means Nvidia will ultimately have to bear the depreciation costs. “What’s more,” it continued, “Nvidia will also take on the risks of being stuck with an inventory of GPUs no one wants if demand for AI workloads don’t match Nvidia CEO Jensen Huang’s rosy predictions.”

The Nvidia arrangements bear a close resemblance to those engaged in by telecom equipment makers 25 years ago. Firms such as Nortel, Lucent and Cisco lent money to telecom companies. But the bubble collapsed because the supply of equipment exceeded the demand, and the networking companies lost as much as 90 percent of their value over the next decade.

In a comment to Fortune, Jay Goldberg, an analyst at Seaport Global, said the Nvidia deals had a whiff of circular financing and were symptomatic of “bubble-like behaviour.”

Stacy Rasgon, an analyst at Bernstein Research, wrote in a note to investors that the Nvidia-OpenAI deal would “clearly fuel ‘circular’ concerns.” He said that while it was a long way for concern about a crisis, the distance was starting to close.

There is also a macroeconomic dimension to circularity. According to calculations by Harvard economist Jason Furman, reported by the FT, investment in processing equipment and software comprises some 4 percent of GDP and was responsible for 92 percent of growth in the first half of the year.

Investment in AI and other technologies, accompanied by a share market surge, is being carried out because it is claimed the economy is “strong.” But outside that investment, growth is essentially zero.

This situation was underscored by a report from the payroll assessor ADP yesterday, which said private sector employment in the US fell by 32,000 last month, the largest drop in two and a half years, after economists’ predictions were for a 50,000 increase.

The Nvidia-OpenAI deal needs to be viewed within the framework of the speculative binge, powered by ultra-cheap money which has powered the rise of Wall Street since the 2008 global financial crisis. The S&P 500 index is at around 6,688. At its nadir after the crisis, it was 666 in March 2009.

There has been a 100-fold increase in the index since then, underlining the growing divorce between the stock market and an underlying real economy on which it ultimately depends. The growth of US GDP over the same period has been from $14.48 trillion in 2009 to $30.5 trillion today—little more than double.

Moreover, the rise in the market has been increasingly concentrated in the tech giants—the so-called Magnificent Seven. Together, Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Tesla account for around 37 percent of the S&P 500 market capitalisation, the highest share on record with Nvidia playing the leading role.

Since October 2022 and the start of the AI stock market surge, its shares have risen 1,350 percent. The development of AI has the potential for a massive boost in the productivity of human labour and the advancement of civilisation. But its exploitation within the framework of capitalist social and economic relations, based on private profit, is sowing the seeds for a major financial crisis, which, as the experience of 2008 revealed, will have devastating economic and social consequences.

Private payroll data shows consecutive month job losses for first time since onset of COVID-19 pandemic

Jacob Crosse

People wait in line for help with unemployment benefits at the One-Stop Career Center in Las Vegas. [AP Photo/John Locher]

For the first time since the onset of the COVID-19 pandemic in April 2020, private employers in the United States laid off more workers than they hired in back-to-back months, according to payrolls processor ADP (Automatic Data Processing).

The unofficial data, which Wall Street investors are relying on since the Bureau of Labor Statistics (BLS) job report is unlikely to come out this Friday due to the government shutdown, revealed that private employment decreased in the US by 32,000 jobs in September, staggering economists who had previously estimated gains of as many as 50,000 jobs.

ADP also revised its August 2025 report, which initially reported 54,000 private sector job gains to -3,000. This is the third month this year ADP has reported negative monthly job growth; in June 2025 ADP reported -33,000 private sector job losses, the first monthly decline since March 2023.

President Donald Trump’s claims that the US economy has entered a “golden age” were bluntly rebutted by the report, which noted the “trend was unchanged; job creation continued to lose momentum across most sectors.” Industries seeing declines in hiring included construction, manufacturing, leisure and hospitality, trade, transportation and utilities, as well as professional and business services. The few sectors that saw any growth were mining, education and healthcare services.

The ADP report is based on surveys and analysis covering more than 26 million US workers. Unlike the ADP report which only tracks private job growth, the BLS report tracks both government and private business.

ADP’s figures are in line with other private sector analyses. On September 4, global outplacement firm Challenger, Gray & Christmas found US-based employers had announced nearly 86,000 jobs cuts in August, up 39 percent from the 62,075 job cuts announced in July. August job cuts were the highest recorded for the month since August 2020, when over 115,000 jobs were slashed.

The US economy is teetering on the brink of recession with workers in white- and blue-collar industries finding it increasingly impossible to find work. In their September report, Challenger, Gray & Christmas observed that so far this year, private companies in the US have announced “892,362 job cuts the highest year to date since 2020,” when companies laid off nearly 2 million workers. This year’s figures represent a 66 percent increase compared to the first 8 months of last year and 17 percent more job losses than in all of 2024 (761,358).

Coffee chain Starbucks recently announced it was closing 1 percent of its stores in North America and laying off 900 white-collar workers on top of 1,100 job cuts earlier this year. Exxon Mobil Corporation, one of the most profitable companies in the world on a yearly basis, announced on September 30 it planned to cut 2,000 jobs globally as part of what CEO Darren Woods characterized in a memo as an “ongoing efficiency drive.”

Citing gains in artificial intelligence and uncertainty surrounding Trump’s illegal tariff regime, major companies are refusing to hire recent college graduates. The Financial Times recently reported that job opening advertisements focused on college graduates have “plummeted” in the last three years in both the UK and the United States. In the US, job listings for college graduates are down over 40 percent compared to 3 years ago, while it is over 60 percent in the UK.

In the US the official joblessness rate for recent college graduates is higher than the official unemployment rate. According to the Federal Reserve Bank of St. Louis, as of August 2025, the unemployment rate for US college graduates aged 20 to 24 was 9.3 percent, nearly double the official unemployment rate.

There is no question more private sector job cuts and layoffs are on the immediate horizon. Newsweek citing data from WARNTracker.com found over 50 major companies are planning hundreds of layoffs in October. WARN, or the Worker Adjustment and Retraining Notification Act of 1988, requires private employers with 100 or more workers to provide 60 calendar days’ notice of plant closings or mass layoffs.

Among the employers planning layoffs are corporations spanning tech, media, healthcare, logistics, manufacturing and finance. These include:

• Tech / Telecom: Cisco, Microsoft, Oracle America, T-Mobile
• Media / Entertainment: CNN/Warner Bros., Warner Music Group, Anaheim Arena Management
• Health and Pharma: Adventist Health, Enloe Health, Providence Health & Services, Children’s Hospital Los Angeles, Gilead Sciences, Catalent, TriLink Biotechnologie, CooperVision Inc.
• Financial Services: Farmers Insurance Group, Wells Fargo, Navient Solutions, Dandelion Payments, Inc.
• Logistics and Transportation: Air Wisconsin Airlines, FedEx, GXO Logistics, J.B. Hunt Transport, Burlington Trailways
• Retail and Consumer: Fred Meyer, Jack in the Box, Car Toys, Inc., Vistar Green Rabbit
• Manufacturing / Industrial: Owens Corning, Smurfit WestRock, Silgan Containers, Winnebago Industries, Zeco Systems, Inc., Zumtobel Lighting Inc., PL Developments, Pactiv Corporation

The scale of these layoffs underscores that the labor market contraction is not limited to small firms or isolated industries. It spans from Silicon Valley giants to Wall Street banks, airlines, hospitals and household-name retailers.

In addition to private sector layoffs, the US government under the Trump administration continues to purge virtually all government employees except those that are directly involved in suppressing, oppressing or extracting wealth from the working class. Reuters reported that as of this week more than “150,000 federal employees will leave the US government payroll” after previously accepting “Department of Government Efficiency” (DOGE)-induced buyouts.

Many of those who had accepted the buyouts have not been working in government offices recently but were still getting a paycheck after accepting the “fork in the road” offer advanced by world’s richest fascist Elon Musk. For a brief moment on Wednesday, Musk became the first person on the planet to be “worth” $500 billion due to a jump in the price of Tesla stock.

Reuters reported that nearly 200 workers at the National Weather Service accepted the buyout, “causing a loss of technical staff who maintain forecasting equipment and many experienced meteorologists.”

Tom Fahy, legislative director of the National Weather Service Employees Organization, told the outlet, “It has caused massive disruption in offices throughout the country.”

Nearly 4,000 workers at the National Aeronautics and Space Administration (NASA) took buyouts, according to Matt Biggs, president of the International Federation of Professional and Technical Engineers, a union which purports to represent 8,000 NASA workers. Biggs told Reuters, “The agency is losing some of the most brilliant engineers and aeronautic scientists in the world, and they are not being replaced.”

The wide-scale job destruction being undertaken by corporate America and the US government has not prompted any action from the trade union bureaucracies that allege to represent workers. None of the government trade unions have proposed strike action, while virtually all of the major private sector trade unions, including the Teamsters, United Auto Workers and International Longshoremen’s Association have backed Trump’s tariff regime.

On its homepage, the AFL-CIO, the largest labor federation in the United States with a membership over 12.5 million, is urging its members to “call Congress” and urge Republicans to pass an extension of the Democrats’ proposed Affordable Care Act tax credits. Not surprisingly, the AFL-CIO is silent on Trump’s plans to militarily occupy major American cities as part of his growing dictatorship and the war on the “enemy within.”

Stark wealth inequality in New Zealand

Tom Peters

Statistics released late last month show that New Zealand’s richest households have expanded their wealth significantly, even as the country’s economy has gone into reverse and the majority of workers are experiencing a major decline in their real incomes.

According to Stats NZ, New Zealand households increased their wealth by an average of 33 percent between June 2021 and June 2024. This largely reflects a bubble in the housing market, driven by low interest rates that have fueled speculative activity, as well as a share market boom.

The vast majority of the gains went to the richest layers of society. For the bottom 40 percent of households—i.e., those less likely to own a house, let alone financial and other assets—there was no statistically significant change.

The poorest 20 percent of households own a median of just $11,000 in assets. Some 109,000 households, the poorest 5.4 percent, own less than zero assets, indicating large amounts of debt.

Foodbank in Invercargill, December 2024 [Photo: Facebook/Harcourts Invercargill]

The wealthiest 20 percent of households, meanwhile, increased their wealth by 19 percent, or $386,000, to a median $2.4 million. This layer holds around two-thirds of New Zealand’s total household wealth.

Wealth is highly concentrated in the hands of the richest 1 percent—about 40,000 people—who control 17.5 percent of the country’s wealth, down slightly from 19.9 percent in 2021. People in this super-rich group last year had a median net worth of $7.191 million—47.6 times that of the median worker, who owns just $151,000 in assets.

The top 1 percent have increased their fortunes by about 16 percent since 2018, when they had a median $6.2 million in assets, according to researcher Max Rashbrooke.

The official statistics, however, understate the concentration of wealth because Stats NZ’s surveys do not count the very richest. Rashbrooke pointed out in his 2021 book Too Much Money that the largest fortune counted in the 2017–2018 Household Economic Survey was $20 million, but the National Business Review “Rich List” profiled hundreds of people worth more than $50 million. He estimated that the top 1 percent actually controlled 26 percent of New Zealand’s wealth.

According to the 2025 “Rich List,” just 119 individuals and families own a combined $102.1 billion in assets, equivalent to 4.9 percent of the net wealth owned by all households (as measured by Stats NZ).

The Stats NZ figures do not capture the impact of the sharp economic downturn over the past year, during which, according to a recent survey by fintech company Revolut, 42 percent of New Zealanders said their financial situation had worsened.

Unemployment increased from 4.7 to 5.2 percent and wages rose, on average, just 2.4 percent—less than the inflation rate of 2.7 percent and well below the 5 percent increase in food prices.

The National Party-led coalition government is actively driving down wages. It increased the minimum wage, paid to roughly 140,000 people, by just 1.5 percent, representing a significant pay cut for the country’s lowest-paid workers.

The Salvation Army released a report on food insecurity last month which noted that “the rate of food insecurity among households with children almost doubled in the two years to June 2024.” While New Zealand exports enough food to feed 40 million people, more than one in four children, 27 percent, live in households “where food runs out sometimes or often.”

At the time of the 2023 Census, 112,496 people were “severely housing deprived,” either homeless or living in overcrowded or unsafe conditions. The situation has worsened since then, as the government has restricted access to emergency housing and cancelled hundreds of projects which would have built 3,500 new public houses.

Auckland Council has found that homelessness in the country’s major city increased by 90 percent in the past year. Last month the government announced it would lease 300 housing units nationwide to accommodate homeless people in Auckland, Hamilton, Wellington and Christchurch, but in Auckland alone more than 800 people are sleeping rough, according to the City Mission.

Teachers on strike outside parliament in Wellington, August 20 2025

Soaring social inequality and poverty are driving working people into significant struggles. Tens of thousands of nurses, doctors and teachers have all held nationwide strikes over the past two months after receiving pay-cutting offers from the government. A one-day strike scheduled for October 23 by education and healthcare workers could involve more than 100,000 people, making it the biggest stoppage in more than 40 years.

The objective of the union bureaucracy, however, is not to lead a sustained industrial and political fight against austerity. It is seeking to impose sellout agreements which will not address the cost of living crisis or the running down of public services. The well-paid union officials are promoting illusions that workers can simply wait until next year’s election and vote for the Labour Party and its allies, the Greens and Te Pāti Māori.

Speaking to the Bradbury Group podcast this week, Labour Party leader Chris Hipkins said, “We can’t afford three more years of this government, it will do so much damage to New Zealand.” He refused to explain what Labour would do differently, saying its policies would be released next year. The party lost the 2023 election in a landslide after presiding over rising unemployment, soaring living costs, and increased homelessness and child poverty.

The last Labour government refused to increase tax on the super-rich, despite evidence that the country’s wealthiest 311 billionaires and multi-millionaires were making enormous profits during the COVID-19 pandemic while paying an effective tax rate of just 8.9 percent—less than half what the average worker paid.

The Labour Party and the Public Service Association, the largest union, are also supporting the government’s decision to double military spending to prepare New Zealand to join US-led wars, above all against China. The diversion of $12 billion to the military over four years is being paid for by the working class through cuts to public services.