Nvidia Reportedly Eyes New Investment in Perplexity Amid 'Circular Deal' Concerns
The chip giant's reported move to fund the AI startup at a $30 billion valuation fuels industry fears of artificial demand loops.
Nvidia is reportedly in talks to increase its stake in AI startup Perplexity as part of a funding round that would value the company at over $30 billion. The move has reignited a debate among industry observers regarding the nature of Nvidia's investment strategy and its impact on the broader AI economy.
According to reports citing The Information, the chipmaker is planning a follow-on investment in the search startup, which it first backed in late 2023. This latest move comes as Perplexity faces intensifying competition from established players like OpenAI and Anthropic, both of which have recently integrated research-oriented modes into ChatGPT and Claude to challenge Perplexity's core offering.
The 'Circular Deal' Controversy
The reported investment is being viewed by critics as part of a broader pattern of "investment-cum-chip purchase" arrangements. This practice has led to accusations of "circular deals," where a hardware provider invests capital into a startup, which then utilizes that same funding to purchase the provider's hardware.
Technology critic Ed Zitron has frequently argued that such dynamics allow Nvidia to effectively support companies within the AI ecosystem to maintain high valuations and ensure a steady stream of compute purchases. While some reports have suggested similar high-value licensing and investment deals with other startups, such as Poolside, those specific figures remain contested within industry discourse.
Market Implications
These concerns suggest a potential feedback loop that could mislead investors about the organic demand for AI hardware. If startups are relying on capital provided by their own suppliers to fund their operations, the actual viability of their business models may be obscured.
For the wider market, this creates a systemic risk. If the current AI narrative fails to translate into sustainable, independent revenue for these startups, the artificial inflation of valuations could lead to a significant correction. This is particularly sensitive given the recent volatility in Nvidia's own stock price ahead of its quarterly earnings reports.
What to Watch
As the AI sector matures, the focus is shifting from raw compute capacity to sustainable monetization. Market analysts are now closely watching whether startups like Perplexity can grow their user bases and revenue independently of strategic investments from their infrastructure providers.
It remains to be seen if Nvidia will officially confirm the terms of the Perplexity investment or if regulatory bodies will take a closer look at these funding loops to determine if they constitute a distortion of market demand.