AI Default Insurance Costs Hit Record as Data Centre Debt Worries Grow
The cost of insuring against US tech defaults has hit record highs, reflecting investor concern over AI investments and mounting debt. Oracle, SoftBank and CoreWeave saw credit default swap spreads widen sharply, with CoreWeave's debt prices tumbling.
The cost of insuring against defaults by US technology companies has surged to record levels, the latest sign of credit stress building in the artificial-intelligence trade, particularly for data centres reliant on future revenue.
The moves reflect growing investor concern over how quickly massive investments in AI will translate into profits, and whether heavily indebted companies can generate returns fast enough to service mounting interest costs, according to market data.
Five-year credit default swap spreads at cloud computing giant Oracle widened by 26 basis points overnight to a record 288 basis points, according to S&P Global Market Intelligence. Five-year spreads for AI investor SoftBank widened 24 basis points to 424 basis points. For data-centre operator CoreWeave, spreads have blown out past 1,000 basis points, according to LSEG data.
Credit default swap spreads indicate the number of basis points charged for default protection. The greater the perceived risk of a credit event, the wider the spread. Oracle's figure represents a cost of US$2.88 to insure US$100 worth of bonds.
CoreWeave, a loss-making data-centre operator that owes nearly US$50 billion according to LSEG data, is in the eye of the storm. Its debt prices are tumbling, with 2032 paper changing hands at 77 cents on the dollar. Shares fell 15 per cent on Wednesday and another 6 per cent after market, wiping out a fifth of their value.
Credit default swap spreads for Amazon, Alphabet, Meta and Nvidia also hit record wide levels, data from LSEG and S&P Global Market Intelligence showed, though at much smaller spreads than Oracle.