Rising CDS volumes signal unease over highly leveraged AI build-outs
Investors are snapping up credit protection on big US tech names as fears grow that the AI boom may not cover its own debt bill.
Trading volumes in single‑name credit default swaps (CDS) on major US technology groups tied to AI have jumped about 90 percent since early September, according to the Financial Times, citing DTCC data.
That marks a sharp shift from earlier this year, when demand for CDS on highly rated US companies was “thin to non‑existent” because tech giants were funding AI from cash and earnings rather than debt.
Meta, Amazon, Alphabet and Oracle have raised roughly US$88bn in bonds this autumn to fund AI projects, and investment‑grade issuers could raise up to US$1.5tn by 2030 for similar spending, according to the Financial Times, citing JPMorgan.
That borrowing is driving demand for CDS baskets on large tech names, with a senior executive at a major US credit investment firm telling the Financial Times that “the most common way is a basket of technology CDS.”
Oracle has become a focal point.
Weekly CDS volumes on the company have more than tripled this year and the cost of protection is at its highest level since 2009.
According to The New York Times, Oracle now plans about US$50bn in capital expenditures through May 2026, up US$15bn from its September forecast, burned through US$10bn in cash last quarter, and already carries about US$106bn in debt, which Morgan Stanley expects could reach US$290bn by 2028.
The cost of protecting Oracle’s debt via CDS has risen to about 1.25 percent, roughly three times September levels.
Concentration risk is front and centre.
OpenAI still accounts for a majority of Oracle’s US$523bn in contracted but unrecognised revenue.
Altana Wealth told the Financial Times it moved into Oracle CDS in early October after assessing rising leverage and reliance on “ChatGPT maker OpenAI”.
Portfolio manager Benedict Keim called Oracle’s CDS “egregiously mispriced”, and colleague Mathieu Scemama described the trade as “low‑hanging fruit.”
Large allocators are split on whether this is still early in the AI “gold rush” or already bubble territory.
Franklin Templeton CEO Jenny Johnson said “we haven’t even begun to see the impact of AI” and compared current worries to the early days of a resource boom, according to Reuters.
By contrast, TCI founder Chris Hohn told the same Abu Dhabi Finance Week audience that some AI‑linked investments “do not make any sense at this stage” and warned that uncertainty and risk are “off the charts.”
At the same event, Blackstone CEO Stephen Schwarzman highlighted the strain on real‑world infrastructure, saying AI will “theoretically” require doubling the electricity grid.
KKR’s global head of real assets Raj Agrawal said the best way to play the “massive opportunity” is through data centres, but warned against “paying big multiples that require growth in a certain period to get your capital back,” Reuters said.
