Almost every AI critic would tell you about circular financing, especially as it pertains to bigger companies like Nvidia (NVDA) beefing up startups with funding. However, the biggest cases are happening more recently, and they involve the biggest AI labs.
Earlier this October, Reuters reported that Broadcom (AVGO) agreed to loan Anthropic up to $42 billion, which is expected to become Broadcom's largest compute customer next year. The AI lab is borrowing primarily to buy hardware from companies like Broadcom.
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This goes against what Hock Tan told a Goldman Sachs audience on Sept. 8, where he said that Broadcom does not finance directly. He also said that Broadcom's funding for AI labs "is not circular financing."
Regardless, this deal goes deeper than providing Anthropic money to buy hardware. This "loan" could end up turning into an investment since Broadcom gets not just interest, but a possible equity stake in its customer.
www.barchart.com Why Broadcom's Funding Scheme Is Smart
Anthropic wants a valuation of over $2 trillion once it completes its IPO sometime later this year. If the IPO goes well and the notes convert into shares, any stake Broadcom builds in Anthropic might balloon if the stock market pours into Anthropic.
And secondly, it's smart because the money will at least partially find its way back to Broadcom. Anthropic is still desperately expanding its compute infrastructure to meet demand as more and more people integrate AI into their workflows and companies automate. Anthropic can only use the proceeds for its TPU lease obligations, so the money leaving Broadcom will come back as lease payments.
In addition, Broadcom is securing the loyalty of its largest customer. Google has fallen behind in the AI race, and OpenAI's attempt to catch up after the Fable 5 model release hasn't panned out too well either. This leaves Anthropic as the leading candidate among companies set to dominate AI workflows.
Broadcom Wants to Fight Nvidia in Financing Too
Nvidia started all the circular financing murmurs by signing memorandums with Apollo (APO), BlackRock (BLK), Blackstone (BX), Brookfield (BAM), Goldman Sachs (GS), and KKR (KKR) to raise $500 billion of third-party capital. Huang said Nvidia can guarantee part of the resale value of the chips behind these loans, up to 25% of a deal, or about $125 billion in total.
Essentially, Nvidia has used its leverage to assemble some of the largest investing firms to pour money into its customers, and much of that money comes back to Nvidia. From Nvidia's perspective, it's an extremely lucrative deal.
Thus, it's easy to see why Broadcom wants to do the same. If financing decides who gets the chip, the chipmaker that doesn't offer financing can lose out on sales. This is no longer just a competition of who can make the best chips, as chip companies are vying to beef up their loss-making customers while courting them to use that money to buy their chips.
Should You Buy AVGO Stock?
On the one hand, you have extremely cash-rich companies that keep beating earnings estimates and are growing at hypergrowth levels while at multi-trillion market caps. On the other, you have AI startups like Anthropic, which reported $4.6 billion in revenue in 2025 but an operating loss of over $8 billion. It's also growing fast, but it's also having to give away some equity to keep funding its operations.
I'd buy AVGO and the other leading chipmaker stocks. You can't buy Anthropic anyway, but buying AVGO stock gives you some early exposure to both explosive spending from AI labs and the upcoming IPO.
Broadcom projects about $115 billion of AI semiconductor revenue in fiscal 2027 and $230 billion in fiscal 2028. And most importantly, Broadcom can afford the loan since free cash flow for the last four quarters was $39.41 billion.
EBITDA in just the past quarter alone rose above $18 billion. I'd expect Broadcom to fund more AI labs as it builds more financing capacity.
www.barchart.com On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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