The surge in CDSs is raising concerns about the sustainability of the current AI investment model, particularly given the high level of spending and the pressure this is beginning to exert on free cash flow
The growing indebtedness of the major US hyperscalers to finance the expansion of artificial intelligence (AI) is driving up demand for protection against a potential deterioration in their credit quality. The widening of spreads on credit default swaps (CDS) reflects a heightened perception of risk, although this does not yet imply that the market is anticipating a widespread scenario of defaults.
Analysts at Norbolsa point out that the rise in CDS spreads is raising concerns about the sustainability of the current AI investment model, particularly due to the high level of expenditure and the pressure this is beginning to exert on free cash flow. However, they believe that the likelihood of a genuine ‘credit event’ occurring remains low. In their view, current CDS levels may reflect a heightened perception of risk rather than an actual expectation of default.
Market data illustrates the scale of the movement. Oracle’s five-year CDS stands at over 200 basis points, compared with 40 basis points a year ago, after S&P Global Ratings downgraded its rating to BBB-, just one notch above speculative grade. The cumulative probability of default implied by the five-year CDS spreads of the major hyperscalers stands at around 7 per cent, compared with 4.5 per cent for US investment grade (IG) companies as a whole. However, Oracle significantly raises the average, with an implied probability of over 16 per cent.
The spread also shows significant differences between companies. At the end of July, Oracle was trading at around 200 basis points, compared with 93 basis points for Meta and 78 basis points for Nvidia, whilst a CDS index for US investment-grade companies stood at around 53 basis points.
Debt levels account for much of this pressure. Amazon, Alphabet, Meta and Oracle had issued nearly $195,000 million in bonds during the first half of the year, around 80 per cent more than in the whole of 2025. Goldman Sachs estimates that issuances by the five major hyperscalers, including Microsoft, could reach $250,000 million this year and $400,000 million in 2027.
Against this backdrop, Norbolsa warns of the need to distinguish between greater financial vulnerability and a scenario of widespread default. Furthermore, the CDS market itself has limited liquidity: contracts on 16 technology companies recorded an average daily volume of around $637.5 million in the second quarter, meaning that relatively small movements can amplify spreads.
