Markets · · 2 min read
Editor: Bohdan S.
Trading in default insurance on Big Tech debt surges as AI borrowing grows
Investors are buying credit default swaps on Oracle, CoreWeave and the tech giants at a record pace, a sign that bond markets are pricing more risk into the AI spending boom.
The short answer
Volumes of credit default swaps, a form of insurance against a borrower failing to repay, have soared on big tech companies as investors hedge against the AI boom unravelling, the Financial Times (FT) reported. Morgan Stanley data show weekly trading tied to AI-linked names topped $9 billion in September, up from under $2 billion in July.
What happened
Investors are rushing to buy protection on the debt of large technology groups, the Financial Times (FT) reported, as worries grow about how the AI build-out is being financed. Morgan Stanley Research figures cited by Crypto Briefing show credit default swap (CDS) trading linked to Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom and Nvidia averaged more than $9 billion a week in September, against less than $2 billion in July. US corporate CDS index volumes this year have already passed 2025's full-year total. On Monday, CoreWeave's five-year CDS spread stood near 1,082 basis points and Oracle's at 315, CNBC reported.
What it means
A credit default swap works like an insurance policy on a bond. The buyer pays a yearly premium, quoted in basis points (100 basis points is one percentage point), and gets paid if the borrower defaults. Higher premiums mean the market sees more risk. A spread above 1,000 basis points, where CoreWeave now trades, is generally read as a sign of distress, CNBC noted.
The reason for the rush is the sheer scale of borrowing. AI-related debt issuance is estimated at $466 billion so far in 2026, against $101 billion in the same period last year, according to Crypto Briefing's summary of market data. Oracle, Alphabet, Amazon and Meta alone have sold more than $228 billion of bonds this year and now make up about 10% of the global investment-grade market, economist David Rosenberg told CNBC. JPMorgan has estimated that $4.1 trillion of AI-related debt will be issued by the end of the decade.
Not all of the trading is a bet on collapse. Some of it likely reflects banks and bondholders hedging loans they already hold. Still, the market is clearly sorting companies by balance-sheet strength. Debt-heavy neoclouds such as CoreWeave sit at the riskiest end, Oracle, rated BBB- by S&P with about $132 billion of net debt, sits in the middle, and the megacaps sit at the safer end, though their spreads have also touched records.
Bankers are urging caution too. HSBC chief executive Georges Elhedery told CNBC that AI is transformational but investors in data centers need to be selective about tenancy agreements and contract pricing, because not every project is equally strong.
The bull case
Much of the surge may be routine hedging by lenders who want to keep financing the AI build-out while limiting their risk, which can actually keep credit flowing. The largest tech companies still have strong cash flows and high credit ratings, and some fund managers see the sell-off in AI bonds as overdone. If AI revenue starts catching up with spending, spreads could narrow again.
The bear case
Rising protection costs show credit investors are less convinced than stock investors that AI spending will pay off. If Oracle were cut to junk, Rosenberg warned, that would be the clearest sign of contagion. Higher spreads raise borrowing costs for firms that need debt markets to grow, which could slow data center projects, hurt chip demand and squeeze equity valuations across the AI trade.
Why it matters
For investors
Wider credit spreads could raise funding costs for AI infrastructure builders and weigh on their shares and bonds, while the stress so far is concentrated in weaker borrowers.
The wider context
Many retirement and bond funds now hold large amounts of tech company debt, so the financial health of AI borrowers matters well beyond tech stock investors.
Market impact
| Asset (ticker) | Possible move | Timeframe | Why |
|---|---|---|---|
| iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) | ↓ Down | Short term | Heavy tech bond supply and wider spreads can weigh on investment-grade bond prices. |
| CoreWeave (CRWV) | ↓ Down | Short term | Distressed credit pricing raises refinancing costs for a debt-funded growth model. |
| Oracle (ORCL) | ↓ Down | Long term | Wider spreads and downgrade risk could raise borrowing costs for its data center plans. |
The FinPrism newsroom's view of how these figures could move, as of . It is general news commentary, not a recommendation to buy, sell or hold anything.
Frequently asked questions
What is a credit default swap?
A credit default swap is a contract that pays out if a borrower fails to repay its debt. The buyer pays a regular premium, quoted in basis points, much like an insurance policy. When the premium, or spread, rises, it signals that the market sees a higher chance of default.
Why are investors buying protection on Big Tech debt?
Tech companies are borrowing record sums to build AI data centers, with AI-related bond issuance estimated at $466 billion so far this year. Investors and lenders are hedging in case the spending does not produce enough revenue to repay that debt, especially as interest rates rise.
Is CoreWeave at risk of default?
Its five-year credit default swap spread was around 1,082 basis points on Monday, a level generally seen as distressed, CNBC reported. That shows the market prices significant risk, but it is not a forecast. CoreWeave relies heavily on borrowing to expand, which makes it sensitive to rising rates.
Sources: Financial Times, CNBC, CNBC, Crypto Briefing
How this was made: written with AI assistance from the sources listed above, following our editorial standards.
