Analysts are getting skittish about all that AI money just moving around in a big circle of deals
It’s rare that a note on accounting disclosures gets Wall Street’s attention, and even rarer still that a complex visual rendering of tentacle-like corporate linkages goes semi-viral.
But a recent report, which included a chart detailing the web of relationships between major AI players, by a team of accounting analysts at Morgan Stanley seemed to achieve this feat. Published last Wednesday, it focused on a growing concern for many in the markets: the hundreds of billions of dollars’ worth of AI-related deals swirling between Microsoft, Nvidia, Oracle, CoreWeave, and OpenAI.
Todd Castagno, who headed up the team that worked on the report, told Sherwood “I think the potential worry is that with some of these relationships, you have a contract and one of the players may not be able to deliver on that promise. That’s essentially the risk.”
It’s not exactly unheard of, Castagno assured us: “This kind of intertwining is not completely unfamiliar, to be honest. The best example is the leap into the avionics and aerospace industry in the 1920s through 1950s. Boeing funded its customers. It funded its suppliers. It owned its suppliers. Douglas, which then became McDonnell Douglas, did the same thing. Lockheed. Raytheon.”
So, what’s the problem? “I think the opacity,” said Castagno. “We have published work from some of my colleagues that suggests a lot of the numbers from a certain player are maybe somewhat aspirational. We just don’t see that clarity, which is kind of the reason why we wrote this note.
Who “a certain player” is is left as an exercise for the reader.
The Takeaway
At its heart, this isn’t precisely skepticism about the AI trade as a whole, but more the way that these deals are being carried out. This is going to be a liability when established publicly-traded blue chip companies rub shoulders with swashbucking startups and have to find out how to talk the same financial language.
“The reason we wrote it is that the disclosures are not as sufficient as some would expect,” he said. “Now, I don’t think any of these companies are skirting accounting rules. But I think there could be more transparency, particularly with related party disclosures.”