I am not sure if the distinction makes a difference, but the latter sounds a lot more reasonable to me.
These circular deals are two paired transactions:
1. Nvidia buys equity in an AI lab or cloud provider with cash.
2. The counterparty agrees to buy X number of GPUs from Nvidia and in exchange Nvidia guarantees to rent some Y fraction of the compute if the counterparty cannot find customers.
This structure goes south during a pullback because all this liquidity Nvidia is essentially providing vanishes and contracts rapidly if the counterparty cannot find customers.
The other circular deal type is via private equity and the Special Purpose Vehicle (SPV).
1. The private equity firm loans money to the SPV.
2. The SPV buys GPUs from Nvidia for a data center.
3. Nvidia guarantees to the private equity firm residual value of the GPU which lowers the risk for the lender.
This deal also breaks down if the demand for GPU compute never materializes because now Nvidia is on the hook to the private equity firm (the lender) for the residual value of the GPU, which again saps Nvidia's liquidity.
Basically these deals are extremely sharp double edged swords. As long as demand for compute outpaces the compute capacity Nvidia can provide, Nvidia's revenues grow exponentially. But if demand growth slows, stops, or goes negative, Nvidia is suddenly on the hook for their counterparties' losses. Suddenly Nvidia's cash flow goes extremely negative and the company's financial situation becomes dicey.
Another thing NVIDIA does: when hyperscalers are looking for debt to build more datacenter capacity, NVIDIA offers to be a backstop in case the compute isn’t actually used. If we take CoreWeave for example, NVIDIA has ownership in it, and also sell them GPUs, and also goes to the banks telling them they will for sure buy the unused capacity as a way to reduce the bank risks.
So you can add that to the whole circular thing
On paper it’s “capital to spend on whatever helps them grow.” In practice, their growth requires enormous amounts of compute, so it’s pretty close to “Here's more money so you can acquire more compute [silent part: much of it from us].”