Three years after OpenAI and Nvidia Corp. ignited the worldwide artificial intelligence frenzy, the two companies are joining forces again to embark on a more expensive phase of development. This new deal has quickly rekindled fears of an AI bubble.

Nvidia announced on Monday that it will invest up to $100 billion in OpenAI to support the expansion of data centers equipped with Nvidia’s chips. Analysts worry that this investment could be seen as an attempt by Nvidia to bolster the market and ensure continuous spending on its products.

“The action will clearly fuel ‘circular’ concerns,” Stacy Rasgon, an analyst at Bernstein Research, noted in an investor note following the deal's announcement.

These concerns have shadowed Nvidia to varying extents throughout the AI boom. According to PitchBook data, Nvidia participated in over 50 venture investment deals for AI companies in 2024, and it's on pace to exceed that number this year. Many of these companies, including AI model creators and cloud providers, use the capital to purchase Nvidia’s high-priced graphics processing units.

However, Rasgon pointed out that the scale of the OpenAI investment “appears to dwarf all the others.” This substantial deal will “likely fuel these worries much hotter than what we have seen previously, and (perhaps justifiably) raise concerns over the rationale behind the action.” Nvidia clarified that the investment will not be used for any “direct purchases” of its products, Rasgon added.

Other tech giants, such as Microsoft Corp. and Amazon.com Inc., have also made strategic investments in leading AI startups to drive business to their cloud services. Nevertheless, Nvidia occupies a unique position in the AI industry, dominating the market for advanced chips essential for training cutting-edge AI models. Consequently, Nvidia has arguably been the greatest beneficiary of the current AI fervor.

Nvidia’s deal with OpenAI comes at a volatile time for the industry. There is growing recognition within and outside the industry of the risk of an AI bubble akin to the dot-com bust 25 years ago. OpenAI CEO Sam Altman has acknowledged that some AI startup valuations may be irrational, even as he supports the long-term investment in AI infrastructure.

By tightening its relationship with the world's most valuable company, OpenAI might gain access to financing and computing capacity it currently lacks as a loss-making business.

“It’s akin to having a parent co-sign on your first mortgage,” said Jay Goldberg, an analyst with Seaport Global Securities who uniquely holds a sell rating on Nvidia’s stock.

Goldberg also believes the deal exhibits signs of circular financing and may symbolize “bubble-like behavior.”

“During prosperous times, this will enhance growth, driving numbers upward rapidly,” he said. “But when the cycle turns, and it will, it will exacerbate the downside.”