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What many critics dismiss as an AI “circular payment” loop — where OpenAI invests in Anthropic, Anthropic partners with Amazon and Google, Microsoft backs OpenAI, and Nvidia powers them all — may actually be a deliberate and rational structure shaped by modern capitalism. And the roots of this loop stretch back to one of the biggest financial shifts in recent corporate history.
When the Money Returned
By 2017, U.S. companies held an estimated $2.8 trillion offshore, largely in tax-friendly jurisdictions such as Ireland and Singapore. Tech giants accumulated much of this cash, preferring overseas tax rules to U.S. repatriation penalties.
This changed with the Tax Cuts and Jobs Act (TCJA) of 2017, which imposed a one-time transition tax on accumulated foreign profits. The move effectively forced trillions back into the domestic system. Companies suddenly had unprecedented liquidity — and limited places to deploy it.
The Post-TCJA Dilemma
With vast reserves and few immediate expansion opportunities, major firms faced three straightforward options:
- Share buybacks: A financial maneuver that boosts stock performance without driving innovation.
2. Increased R&D: Yet after a decade of optimization across advertising, cloud computing, and data-driven services, the marginal gains from further research had diminished.
3. Strategic investments in emerging companies: The option that quickly gained momentum, particularly in AI.
This third path redirected billions into new and untested AI startups — and inadvertently set the stage for the interconnected investment web critics now label a “circular payment” ecosystem.
A Portfolio Strategy Disguised as Competition
Skeptics argue this system is insular and self-referential. But structurally, it functions as a sophisticated form of portfolio diversification.
Past generations of tech innovators — from Pets.com to Napster — collapsed because they lacked financial insulation during market volatility. Today’s major players appear intent on preventing similar failures. By holding stakes across multiple AI companies, large firms ensure that disruptive ideas remain within the broader ecosystem, even if individual players struggle.
Rather than pure competition, the industry is moving toward collaborative redundancy — a way to safeguard against systemic shocks while maintaining the appearance of rivalry.
A Closed Financial Loop
The flow of money between AI firms, cloud providers, chip manufacturers, and investors increasingly resembles a closed economic circuit. Capital exits one startup and enters another, allowing the broader system to sustain momentum regardless of individual performance.
For critics, this looks inefficient or overly consolidated. But for companies with unprecedented liquidity, it has become a way to keep innovation alive during periods when organic growth opportunities are limited.
A Bubble or a Stabilizer?
The question now is whether this is a speculative bubble or a stabilizing mechanism. The answer may lie somewhere in between. With limited new markets to penetrate, the largest companies appear to be using a circular payment structure as a means of risk distribution, talent retention, and continuous innovation recycling.
In this sense, the AI circular payment loop may not be a flaw in the system — it may be the system functioning exactly as designed.
References
- CNBC: Companies are holding $2.6 trillion in cash overseas
- International Tax Review: How reform in the US affects Microsoft’s tax structure