The problem is that stocks are often valued and traded on revenue growth, not profit[0] So circular funding generates stock price bumps when, as you said, there's no inherent value underneath. Creates a recipe for a crash.
[0] consider pagerduty, incredibly profitable with little revenue growth. Trading at 1.5X revenue, where high revenue growth, unprofitable companies are trading at 10X revenue.
[0] consider pagerduty, incredibly profitable with little revenue growth. Trading at 1.5X revenue, where high revenue growth, unprofitable companies are trading at 10X revenue.