Circular investments generate 55 percent of AI sector funding
Between 2021 and 2025, 55.2 percent of incoming investments in artificial intelligence firms originated from within the sector itself, according to a BIS study. The researchers warn that circular capital flows and supply chain overlaps increase financial opacity.
Capital loops and shared balance sheets
Cross-firm investments within the artificial intelligence sector expanded between 2021 and 2025, creating tightly linked corporate ecosystems.
According to BIS Bulletin 137, authored by Jon Frost, Rudraksh Kansal, Kumar Rishabh, Vatsala Shreeti, and Leanne Si Ying Zhang, 28.7 percent of AI firm investment deals by value targeted other AI companies.
Moreover, 55.2 percent of all incoming funding received by AI firms originated from industry peers.
Deal arrangements frequently extend into commercial operations: 16.1 percent of AI-to-AI transactions by count, and 46.4 percent by deal value, simultaneously involved active supply chain contracts between the investing and recipient firms.
Securing inputs under high uncertainty
The authors note that circular investment structures arise partly from structural industry needs, including the race to secure scarce inputs such as specialized compute capacity and proprietary datasets.
Severe information asymmetries regarding technology capabilities also encourage firms to back familiar ecosystem partners.
However, combining equity stakes with commercial supply ties concentrates operational dependencies.
If revenue flows and valuations rely on mutual funding, balance sheet shocks can propagate rapidly across the entire tech sector.
A closed loop built on borrowed confidence
The data reveals that AI revenue figures increasingly risk reflecting self-referential round-tripping rather than external demand.
Tying equity stakes directly to vendor contracts inflates book valuations while masking systemic contagion risks.
Financial supervisors must look past headline growth to scrutinize these opaque balance-sheet loops.
Source: Circular relationships among AI firms
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