Key highlights:
- Trading in credit default swaps linked to major AI companies increased in September, averaging more than $9 billion per week. That’s way up from under $2 billion per week in July.
- AI-related companies issued around $466 billion in debt in 2026, more than four times the $101 billion for the same period in 2025.
- The cost to insure against five-year default for companies like Meta, Nvidia, Alphabet, and Amazon just reached record highs this month.
- CoreWeave stands out, with its five-year credit default swaps trading at about 1,090 basis points.
Investors are growing more nervous about financial risks tied to the explosive growth in artificial intelligence. Companies are borrowing huge sums to build data centers, buy chips, and secure all the hardware needed for AI. According to the Financial Times, this rising debt and doubts about whether these investments will be profitable mean investors are looking for ways to protect themselves from possible defaults. Credit default swaps (CDS), financial contracts that compensate buyers in the event of a borrower’s default, are attracting interest from bond investors, equity market participants and managers overseeing portfolios across different asset classes.
This demand for CDS reflects bigger questions about the financial strength of the AI industry. Some companies have strong balance sheets, but others are relying on loans to keep up with the race. Investors are watching the relationship between debt, spending and free cash flow as concerns grow that financial pressure on one company could affect other businesses connected to the AI ecosystem.
Demand for Credit Default Swaps Rises Sharply
Trading in CDS for companies like Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom, and Nvidia has increased. Morgan Stanley Research says these contracts averaged over $9 billion a week in September, compared to less than $2 billion back in July.
More broadly, the whole U.S. corporate CDS market is booming. Bloomberg notes that trading volume for 2026 has already surpassed all of 2025’s total.
CDS lets investors buy insurance in case the company they’re betting on defaults. The more worried the market is about a company’s ability to pay its debts, the higher the price to protect against that risk. CDS became famous during the 2008 financial crisis, and they’re back in focus as questions rise over AI investments.
Now, it isn’t just bond traders using CDS. Stock market investors and those handling many kinds of investments are also reaching for CDS, because stock options for hedging can get pricey when company shares are highly volatile.
Rising Borrowing Raises Questions About AI Returns
Debt levels for AI-focused companies have raised into a serious concern. Morgan Stanley says by 2026, these firms had issued $466 billion in debt, up from $101 billion for the same stretch in 2025. They’re raising this cash to fund new data centers, chips, and all the supporting infrastructure for AI.
Even though borrowing has slowed a bit since June, investors still aren’t sure if all this money invested into AI will actually pay off. The concern is relevant because so many companies depend on the same web of suppliers, infrastructure builders, and tech partners.
Manish Kabra, who heads US equity strategy at Société Générale, told the Financial Times that CDS are now seen as a key indicator of investor sentiment about hyperscaler funding and AI. He pointed to credit protection costs and cash flow as things investors are watching more closely.
Jim Caron, chief investment officer at Morgan Stanley Investment Management, also mentioned that risk is getting concentrated, which helps explain why investors are seeking CDS protection.
Protection Costs Reach Records Across Technology Companies
The expense of insuring against default is rising fast for big tech firms. Five-year CDS for Meta hit a record 108 basis points this month. That means insuring $10 million in Meta debt costs $108,000 each year now. Nvidia’s spread set its own record at 101 basis points.
Alphabet and Amazon also reached new highs, though insuring their debt is still much cheaper than for some more riskier borrowers.
Oracle’s CDS now sits at 322 basis points, jumping from 144 at the start of the year. SpaceX reached a record 226 basis points earlier this week, more than double the 110 points seen in late June.
Gavan Nolan of S&P Global Market Intelligence said the higher cost reflects how tangled financial connections are among these companies. He also pointed out that sharp price swings for CDS in daily trading show there’s a lot of uncertainty right now.
CoreWeave Becomes a Major Source of Credit Concern
CoreWeave, a cloud company specialized in AI, is on everyone’s radar because of its heavy borrowing and the poor prices on some of its bonds.
Its five-year CDS trades at around 1,090 basis points. Investors seeking $10 million in protection must pay an upfront amount of $1.82 million, followed by quarterly payments of $125,000.
Nolan says that once a company’s CDS rises above 1,000 basis points, what lenders can actually recover if things go wrong starts to really matter for prices.
Robert Dafforn, chief investment officer at Polus Capital, a London-based specialist in distressed debt, warned that there’s a lot of risky borrowing in the industry and plenty of money might get wasted. He added that if one part of this closely connected network stumbles, the damage could easily spread.
So, rising costs for CDS are signaling more than just trouble for a single company. Investors are now watching how all the borrowing, heavy spending on infrastructure, and interconnections in the AI sector could affect the whole market.
