Zoho founder Sridhar Vembu has described the current artificial intelligence boom as "clearly an investment bubble" while reacting to a viral post on X that raised questions about the financial underpinnings of major AI investments. The prominent entrepreneur noted that significant technology waves often generate financial bubbles, adding that the ongoing AI cycle may represent "the biggest bubble yet."
Viral Post Sparks Debate on AI Revenue
Vembu's comments came in response to a post by the account Bull Theory, which claimed that a substantial portion of the AI industry's growth is driven by accounting structures and investment loops involving major cloud companies and AI startups. The post has garnered over 849,000 views on X. In his reply, Vembu wrote: "AI is clearly an investment bubble. The justification is that all massive tech waves spark financial bubbles so saying it is a bubble doesn't negate the tech itself. And this one is the biggest bubble yet. How to navigate this without losing one's shirt is the key."
The Alleged Accounting Trick
Bull Theory's post outlined a mechanism it calls a "round trip revenue loop." According to the post, tech giants invest billions in AI startups with strings attached, requiring those startups to spend the money on cloud services from the same tech giants. This creates a circular flow where the tech giant records the startup's cloud spending as revenue, effectively paying itself with its own money.
For example, Microsoft invested $13 billion in OpenAI using "cloud credits" for Microsoft servers. OpenAI used those credits to train its models, and Microsoft recorded the server usage as new cloud revenue. The post claims OpenAI's annual cloud bill has ballooned to over $60 billion, more than double its actual revenue of $25 billion, sustained only by this recycling of funds. Similarly, Anthropic spent $2.66 billion on Amazon Web Services in nine months, nearly all of its earnings at the time.
Paper Profits and Data Center Costs
The post further alleges that this manufactured demand allows tech giants to book massive paper profits. When a startup's valuation rises in a new funding round, the tech giant updates the value of its investment and counts the increase as profit. In Q1 2026, Alphabet reported $62.6 billion in profit, but $28.7 billion came from a paper markup on its Anthropic investment. Amazon reported $30.3 billion in profit, with $16.8 billion from an Anthropic paper gain. Meanwhile, Amazon's free cash flow collapsed 95% to $1.2 billion due to $44.2 billion in real cash spent on building data centers.
Concentration Risk and Historical Parallels
The post warns of concentration risk: Microsoft has 49% of its $627 billion future cloud backlog tied to OpenAI, while Oracle has 54% of its $553 billion pipeline relying on OpenAI alone. It draws a parallel to the 2001 dot-com crash, where companies like Global Crossing and Qwest Communications swapped fiber-optic network capacity to book fake sales. The key difference, the post notes, is that the dot-com swaps were illegal, whereas today's AI loop is legal under current accounting rules. This self-feeding loop inflates stock prices, forcing retirement accounts and index funds to buy more tech stocks, creating a cycle where investments, sales, and stock prices rise on paper without real cash profits from AI technology.
