The

United States Federal Reserve

has played a central role over the past 15 years in inflating asset prices through aggressive monetary policy.

By slashing

interest rates

to near-zero levels and expanding its balance sheet via quantitative easing (QE), the Fed injected trillions of dollars into the financial system. This liquidity tsunami didn’t just stabilize markets; it supercharged them.

Nowhere was this more evident than in the tech sector, where companies such as Apple Inc., Microsoft Corp. and Meta Platforms Inc. used the cheap capital to innovate

and

give their growth a good boost via good old-fashioned financial engineering.

The buyback boom: Financial engineering on steroids

Apple alone has repurchased US$704-billion worth of its own stock over the past decade. That figure exceeds the market capitalization of all but 13 companies globally.

Microsoft, meanwhile, spent US$199 billion on buybacks during the same period. Meta and Alphabet Inc. added another US$207 billion and US$317 billion, respectively. In total, just four tech giants deployed more than US$1.4 trillion on buybacks.

These buybacks reduced share counts, artificially boosted earnings per share (EPS) and helped sustain lofty valuations. In essence, companies used Fed-fuelled liquidity to build new products or expand operations and to juice their stock prices, like athletes on performance-enhancing drugs.

Enter AI: A new kind of financial loop

Now, with the

artificial intelligence

(AI) boom in full swing, we’re witnessing a new form of circular financial engineering. Companies aren’t just selling products; they’re investing in their customers to ensure those customers can afford to buy more of their products to justify forward growth and implied valuations.

Take Nvidia Corp.,

OpenAI Inc.

and Oracle Corp. Nvidia recently announced a

US$100-billion investment

in OpenAI to build out 10 gigawatts of AI data centres. That’s equivalent to the output of 10 nuclear reactors and involves deploying four million to five million graphics processing units (GPUs), essentially Nvidia’s entire annual production.

But here’s the twist: OpenAI will use that capital to buy Nvidia’s chips. Nvidia gets equity in OpenAI and OpenAI gets the hardware it needs to scale. It’s a self-referential loop as Nvidia invests in OpenAI, which then turns around and spends that money on Nvidia’s products.

Oracle is also in on the game, committing US$40 billion to purchase Nvidia chips for OpenAI’s Texas-based Stargate data centre. Oracle will lease the facility to OpenAI under a 15-year agreement, effectively financing its own future revenues.

This ecosystem is becoming increasingly circular: Nvidia provides capital and chips, OpenAI uses those chips to build models and Oracle builds and leases the infrastructure.

All three benefit from the revenue generated by AI services that rely on their own inputs. It’s a closed loop of capital and consumption, where companies are investing in each other to sustain demand for their own products. This isn’t just vertical integration; it’s financial symbiosis.

The sustainability question

You don’t have to be an AI skeptic to see the risks.

If Nvidia has to fund the very demand that drives its revenue, what happens when that demand falters? If OpenAI’s growth depends on Nvidia’s chips, and Nvidia’s growth depends on OpenAI’s purchases, the entire system becomes a giant house of cards.

It’s reminiscent of the 2008 housing bubble and ensuing financial crisis, when banks lent money to buyers who used it to purchase homes that inflated the banks’ balance sheets.

The AI sector is now so intertwined that failure in one node could ripple across the entire network. And with valuations already stretched, the risk of a correction grows. The Fed’s liquidity binge created the conditions for this financial engineering and the expectation for more. We’ve essentially created a market addicted to low interest rates.

It’s a brilliant strategy, but also a dangerous one. If the AI boom slows or capital dries up, the circular logic could collapse. Investors would be wise to look beyond the hype and ask: Is this growth organic or just another form of financial steroids?

  • Investors have to adjust as monetary policy becomes increasingly politicized
  • Capitalism for big firms, risk for everyone else: Why the investment landscape needs a reset

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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