Amazon and Alphabet Profits Expose the Circular Side of the AI Boom

The record profits reported by Amazon and Alphabet turn out to rely heavily on AI investments flowing between tech giants themselves. Experts warn of a circular money trail that artificially inflates the explosive growth of artificial intelligence.

At first glance, the **AI boom** looks like a steady engine of profitability, but the latest quarterly results from Amazon and Alphabet cast a different light on the matter. According to an analysis by The New York Times, a significant portion of both tech giants' profits stems from investments the companies make in each other's **AI infrastructure**. Money that flows out as a cloud contract or chip order flows back in through equity investments and partnerships. That raises questions about how sustainable the current growth figures in the AI sector really are.

What do experts mean by a "circular" AI economy?

A circular economy in AI refers to major players such as Amazon, Alphabet, Microsoft and Nvidia financing one another back and forth. Nvidia, for instance, invests in AI startups that then turn around and buy Nvidia chips, while cloud services from Amazon (AWS) and Google Cloud are largely purchased by those very same AI companies in which they themselves also invest capital. The result: the same dollars get counted multiple times as revenue, without any real, external demand actually feeding the sector. Analysts point out that this pattern strongly resembles earlier technology bubbles, where mutual financing reinforced the impression of explosive growth until the fundamentals were put to the test. Still, both Amazon and Alphabet emphasize that their investments in data centers and AI models do lead to concrete products, from smart assistants to enterprise solutions that customers actually use.

Amazon and Alphabet: record profits with caveats

Amazon reported sharply higher revenue from AWS in the past quarter, driven by demand for computing power for generative AI models. Alphabet saw comparable growth figures at Google Cloud, partly thanks to the popularity of its own AI models. At the same time, both companies are investing tens of billions of dollars in new data centers, energy supply and specialized AI chips. The problem, critics argue, is that part of these investments goes into companies that are in turn customers of those same cloud services. This creates a loop in which capital is pumped around without necessarily generating new, independent sources of revenue. Investors and regulators are following this development closely, since any drop in confidence in the AI sector could quickly spread to multiple companies at once because of this interconnectedness.

Consequences for consumers and the broader market

The enormous investments in AI infrastructure also have direct consequences for consumers. Higher energy costs around data centers, rising chip prices and expensive cloud services filter through into the prices of all kinds of products and services. This ties in with broader reporting on how AI investments are driving up consumer prices, something economists have been warning about for some time. At the same time, big tech companies keep insisting that these investments are necessary to stay ahead in what is seen as the most important technological shift since the internet. Anyone who wants to know more about how we got to this point can read up on the history of artificial intelligence, while a broader overview of practical applications can be found via AI applications.

What does this mean for the future of AI investment?

The question now on the table is whether the current growth figures are sustainable once the mutual financing arrangements come to light and investors start looking more critically at real, external demand for AI services. Some analysts predict a correction once companies are forced to make their accounting more transparent, while others believe the underlying technology is valuable enough that the growth remains justified in the long run. For now, Amazon and Alphabet are sticking to their ambitious investment plans, even as criticism of the sector's circular money flows grows. One thing is certain: the upcoming quarterly results from other tech giants such as Microsoft and Nvidia will be watched closely to see whether the same pattern repeats itself there. Curious about the latest developments? Check out more AI news or dive deeper via our knowledge base.

The New York Times

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Source: The New York Times