Its not that circular financing is sinister or illegal, its that its very risky. If the startups that are purchasing the product are also getting a loan from the company making the product and that loan is also backed by that same company then if that startup is unprofitable and has massive debt at interest rates like 15% or has near junk bond ratings then the company that built, financed and backed the products is on the hook for it all.

Sure they have customers pounding at their door for more product. At some point the hype machine stops and new neocloud startups can't get funding because its too expensive or banks don't trust them. Then what happens? The circular financing starts to unwind itself and NVidia is the "bag holder". If you look up Lucent or Nortel this happened to them during the dot com boom. There is a positive difference here with NVidia, they have so much demand and usage this can probably go on for a while. Lucent and Nortel were bit by dark fiber and the usage/demand just wasn't there.

If Jensen at the helm of NVidia is bullying/convincing companies into purchasing more than they need, financing it, etc. and creating the hype machine himself and NewCEO ain't going to play that game, then it could be an end to the circular financing.