• Credit default swap trading on major tech firms surges 90 percent

• Investors hedge against risk that AI spending boom may not deliver returns

• Oracle, CoreWeave and Meta drive increased CDS demand amid heavy borrowing

• Tech bond issuance jumps as AI infrastructure costs soar

• Volatile earnings rekindle fears of overextension in AI sector

• Rising CDS costs signal growing scrutiny of individual company credit risk

Investors are rushing to insure themselves against the possibility that the artificial intelligence boom could sour, driving a sharp surge in trading of credit default swaps linked to major US technology companies.

Volumes in the derivatives, which pay out if a borrower defaults, have jumped 90 percent since early September, according to data from DTCC. 

The escalation highlights growing unease over a wave of bond issuance by tech firms racing to finance costly AI infrastructure that may take years to produce meaningful revenue.

The appetite for hedging has intensified alongside a renewed sell-off in tech stocks sparked by disappointing earnings from Oracle and chipmaker Broadcom. 

Over recent months, the debt and equity of AI-exposed companies have swung sharply as investors weighed quarterly results and assessed how rivalry among OpenAI, Google and Anthropic might shape demand for chips and data centers.

Oracle and cloud computing group CoreWeave have seen some of the strongest rises in CDS activity as both companies take on billions in new borrowing to expand their data center footprint. 

Meta has also sparked fresh interest in the CDS market after issuing $30 billion in bonds to support its AI ambitions.

Nathaniel Rosenbaum, an investment-grade credit strategist at JPMorgan, said demand is surging. 

He noted that “single-name CDS volumes are up significantly this quarter, particularly for the hyperscalers” that are building massive computing hubs across the United States.

A senior executive at a large credit investment firm said CDS trading has increased sharply for individual tech names, with investors frequently using baskets tied to heavyweights such as Oracle and Meta. 

“How do you protect yourself and create a hedge? The most common way is a basket of technology CDS,” he said.

At the start of the year, default protection for highly rated tech companies attracted little interest because many firms were funding AI investments out of cash reserves and robust earnings. 

But that changed once major players began leaning more heavily on bond markets to cover mounting expenses. Meta, Amazon, Alphabet and Oracle have raised a combined $88 billion this autumn, and JPMorgan expects investment-grade borrowers could raise $1.5 trillion by 2030 to support AI development.

“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.

Oracle has become a focal point for market anxiety. Its CDS trading volumes have more than tripled this year, and the cost of protection has climbed to its highest level since 2009. 

The company’s shares and bonds fell sharply this week after it missed revenue expectations and postponed construction of at least one data center.

Portfolio managers at Altana Wealth said they began betting against Oracle in early October after reviewing its rising debt levels and heavy dependence on OpenAI as a customer. 

“We don’t see Oracle defaulting anytime soon, but [the company’s CDS] were egregiously mispriced,” said Altana’s Benedict Keim.

“Single-name CDS are having a moment,” added Brij Khurana, a portfolio manager at Wellington. 

He said growing exposure among banks and private credit lenders to individual firms is driving the search for insurance. “People are looking for insurance on their holdings,” he said.