Investors are increasingly seeking financial protection as concerns over an artificial intelligence debt bust grow.
According to the Financial Times, trading in credit default swaps, which serve as insurance against defaults, has surged by 90% since September. This increase reflects investor anxiety about technology firms’ rush to incur debt for AI infrastructure, an investment that may take years to yield returns.
The heightened CDS trading is most notable for companies like Oracle (ORCL) and CoreWeave (CRWV), both of which are raising billions to expand data centers. Oracle has seen a significant rise in its CDS costs, now at their highest since 2009. The growing popularity of Meta (META) CDS followed the social media giant’s $30 billion bond issuance for AI projects in October.
Investors are particularly focused on protecting themselves against potential defaults as tech firms, including Meta, Amazon (AMZN), Alphabet (GOOG) (GOOGL), and Oracle, collectively raised $88 billion this autumn to finance AI initiatives. JPMorgan forecasts that investment-grade tech companies might amass $1.5 trillion by 2030 in debt to support these ventures.