I remember seeing this extremely shocking graph of top AI companies on Facebook on how the money just keeps changing hands between a handful of companies. Almost seemed like a scam.

It is a similar kind of lending loop to that which went on during the late 1990's leading up to the 2000 crash. A lends to B lends to C lends to A.

There is a famous quote from the polish economist Kalecki, that "economics is the science of mistaking a stock for a flow". Essentially this form of lending continues while everybody can make interest payments, and blows up horribly as soon as somebody can´t - as I have no doubt all those concerned are fully aware.

Money doesn’t just flow around with nothing exchanged. The money is in payment for goods and services.

It’s common even for smaller companies to do mutually beneficial business with each other. It’s actually helpful to do business with people who are also your customers because you have a relationship with them and you also have leverage: They are extra incentivized to treat you well because they don’t want to upset any of the other business you have with them.