Investors seek protection from risk of AI debt bust
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Credit default swapsAdd to myFTGet instant alerts for this topicManage your delivery channels hereRemove from myFTInvestors seek protection from risk of AI debt bustTrading in insurance-like products that protect against tech company defaults is boomingDebt and equity of companies linked to the tech boom have been choppy in recent months © AFP/licensorsInvestors seek protection from risk of AI debt bust on x (opens in a new window)Investors seek protection from risk of AI debt bust on facebook (opens in a new window)Investors seek protection from risk of AI debt bust on linkedin (opens in a new window)Investors seek protection from risk of AI debt bust on whatsapp (opens in a new window) Save Investors seek protection from risk of AI debt bust on x (opens in a new window)Investors seek protection from risk of AI debt bust on facebook (opens in a new window)Investors seek protection from risk of AI debt bust on linkedin (opens in a new window)Investors seek protection from risk of AI debt bust on whatsapp (opens in a new window) Save George Steer, Kate Duguid, Eric Platt and Oliver Roeder in New YorkPublishedDecember 14 2025Jump to comments sectionPrint this pageUnlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Trading in products that pay out when companies default is soaring as investors hunt for ways to protect their portfolios against the risk that the artificial intelligence boom turns into a bust. Volumes in so-called credit default swaps tied to a handful of US tech groups have climbed 90 per cent since early September, according to data from clearinghouse DTCC.The expanding use of these strategies underscores how some investors are growing uneasy about a rush of bond deals by tech companies to finance AI infrastructure, which could take years to generate returns. The rush to hedge against potential defaults comes as Wall Street’s tech sell-off was reignited last week by earnings from software group Oracle and chipmaker Broadcom that had fallen short of investors’ lofty expectations.The debt and equity of companies linked to the tech boom have whipsawed in recent months as traders scrutinised earnings reports and debated how competing AI products from companies such as OpenAI, Google and Anthropic would affect demand for chips and data centres. The uptick in CDS trading has been particularly pronounced for Oracle and cloud computing company CoreWeave, both of which are raising billions of dollars in debt to secure data centre capacity. A new market for Meta CDS sprang up after the company sold $30bn of bonds to finance AI projects in October.CDS are used for default protection but also to hedge against or bet on swings in bond prices. “Single-name CDS volumes are up significantly this quarter, particularly for the hyperscalers” building huge data centres across the US, said Nathaniel Rosenbaum, an investment-grade credit strategist at JPMorgan. A senior executive at a large US credit investment firm echoed that sentiment, noting that “CDS trading in single names has increased markedly, with folks increasingly using baskets on the big tech companies or on Oracle and Meta specifically”.“How do you protect yourself and create a hedge? The most common way is a basket of technology CDS,” the person added.Some content could not load. Check your internet connection or browser settings.Appetite for CDS for highly rated US companies was thin to non-existent at the start of the year, when tech groups were primarily funding their AI spending through their hefty cash piles and strong earnings. The market warmed up once those companies began to tap debt markets to cover their mounting costs. Meta, Amazon, Alphabet and Oracle raised a combined $88bn this autumn to fund AI projects, with JPMorgan predicting that investment-grade companies are on track to raise $1.5tn by 2030. “People went from thinking there is virtually no credit risk to thinking there is some risk depending on the name, and that warrants hedging,” said an investor at a specialist asset manager. For Oracle, which has a lower credit rating than some of its investment-grade peers, CDS weekly trading volumes have more than tripled this year. The cost of buying the derivatives has risen to its highest level since 2009. Oracle’s shares and bonds suffered a deep sell-off this week after it missed analysts’ estimates for revenue in the third quarter. They fell further on Friday after it delayed construction of at least one data centre.“We don’t see Oracle defaulting anytime soon, but [the company’s CDS] were egregiously mispriced,” said Benedict Keim, a portfolio manager at asset manager Altana Wealth, which is betting against Oracle through its CDS.Altana entered the trade in early October after assessing Oracle’s rising debt levels and reliance on one customer — ChatGPT maker OpenAI. “It was low-hanging fruit,” said Altana’s Mathieu Scemama. “Single-name CDS are having a moment,” said Brij Khurana, a portfolio manager at Wellington. “There is much more exposure that banks and private credit players have to individual companies,” he added. “So they do want to mitigate the risk of that. People are looking for insurance on their holdings.”Reuse this content (opens in new window) CommentsJump to comments sectionPromoted Content Follow the topics in this article US companies Add to myFT Big Tech Add to myFT Technology sector Add to myFT US equities Add to myFT Artificial intelligence Add to myFT Comments