What is driving increased demand for credit default swaps?
Investors are increasing their use of credit default swaps (CDS) to hedge exposure to debt issued by companies involved in artificial intelligence infrastructure, according to market data and financial industry research.
The increase comes as technology companies raise substantial amounts of capital to finance data centres, semiconductors and other computing infrastructure.
Morgan Stanley Research reported that weekly trading in CDS linked to bonds issued by Oracle (NYSE:ORCL), SpaceX (NASDAQ:SPCX), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Meta (NASDAQ:META), Broadcom (NASDAQ:AVGO) and Nvidia (NASDAQ:NVDA) averaged more than $9 billion in September.
That compares with less than $2 billion per week in July.
Separately, Bloomberg data showed that trading volumes in US corporate CDS indices have already exceeded the total recorded throughout 2025.
The increase reflects greater demand for instruments that can provide protection against credit losses or allow investors to express views on changes in corporate credit risk.
How much debt have AI-related companies issued in 2026?
According to Morgan Stanley, AI-linked debt issuance reached an estimated $466 billion so far in 2026, compared with $101 billion during the corresponding period of 2025.
The increase has been driven by financing requirements for artificial intelligence infrastructure, including data centres, chips and associated computing systems.
Companies involved in developing and operating these facilities have accessed bond markets and other credit sources to support their investment programmes.
The expansion in borrowing has also increased investor attention on the relationship between upfront capital expenditure and the revenue that infrastructure projects may generate over time.
As debt issuance grows, investors are assessing how financing costs, operating performance and the financial relationships between AI companies could affect creditworthiness.
How do credit default swaps work?
A credit default swap is a financial derivative that provides protection against specified credit events, such as a default by a corporate borrower.
The buyer of protection makes payments to the seller in exchange for compensation if a covered credit event occurs, subject to the contract’s terms.
CDS prices are generally expressed as a spread in basis points, with 100 basis points equivalent to one percentage point annually.
For example, a CDS spread of 108 basis points represents an annual premium of approximately $108,000 to protect $10 million of debt, assuming a conventional running-premium structure.
Higher CDS spreads generally indicate that investors are demanding more compensation to assume the associated credit risk.
However, spreads can also be affected by market liquidity, hedging demand and trading activity, meaning they are not direct measures of the probability of default.
Which technology companies have experienced increases in CDS costs?
The cost of credit protection has reached record levels for several companies involved in AI infrastructure and related services.
Five-year CDS spreads for Meta increased to 108 basis points this month, while Nvidia’s reached 101 basis points. Both represented record highs.
Oracle’s CDS spread was quoted at 322 basis points on Monday, compared with 144 basis points at the beginning of 2026.
SpaceX’s CDS spread reached a record 226 basis points at the start of the week, up from 110 basis points when trading in the contracts began in late June.
Credit protection costs for Alphabet and Amazon have also reached record highs, according to the reported market data.
Microsoft (NASDAQ:MSFT) and CoreWeave (NASDAQ:CRWV) have similarly experienced increases in CDS pricing.
The changes indicate that the cost of hedging exposure to these companies has risen, although the magnitude of the increases differs substantially between issuers.
Why are investors using CDS to hedge their AI investments?
Portfolio managers are using credit default swaps as a means of reducing exposure to potential losses associated with AI-related corporate debt and broader changes in market sentiment.
Multi-asset and equity managers can use CDS contracts to hedge certain risks without necessarily selling the underlying securities.
The interconnected nature of the AI industry is another factor influencing trading activity.
Companies providing computing infrastructure to artificial intelligence developers such as OpenAI and Anthropic are financially linked through contracts, investment commitments and infrastructure spending.
As a result, investors are monitoring credit markets for companies including Oracle and Alphabet, alongside other major technology businesses.
“CDS has become a key bellwether of investor sentiment towards hyperscaler funding and the broader AI trade,” said Manish Kabra, head of US equity strategy at Société Générale.
The increase in CDS activity suggests that investors are paying greater attention to financing conditions across the AI sector.
Why are CoreWeave’s credit protection costs particularly high?
CoreWeave, which provides cloud computing infrastructure for artificial intelligence workloads, has experienced a substantial increase in the cost of insuring its debt against default.
Its five-year CDS spread was trading at approximately 1,090 basis points, considerably above the levels reported for major technology companies such as Meta and Nvidia.
Under the quoted contract structure, an investor seeking $10 million of protection would need to pay approximately $1.82 million upfront, followed by quarterly payments of $125,000.
The upfront payment reflects the pricing conventions associated with high-spread CDS contracts and is separate from the ongoing premium payments.
CoreWeave’s CDS pricing highlights the differences in perceived credit risk and financing structures across the AI industry.
Companies with substantial borrowing requirements can face different credit market conditions from larger technology groups with more diversified revenue sources.
What concerns have credit investors raised about AI infrastructure financing?
Some credit investors are questioning whether the scale of borrowing and infrastructure investment across the AI sector will be matched by sufficient financial returns.
Robert Dafforn, chief investment officer of London-based distressed debt specialist Polus Capital, referred to the use of “very highly levered” borrowing within the industry.
“You know there is going to be a lot of misallocation” of capital, Dafforn said.
His comments reflect concerns that some investment projects may not generate returns consistent with the amount of financing committed to them.
The rapid expansion of AI-related borrowing has also increased attention on the financial dependencies between infrastructure providers, technology companies and AI developers.
However, higher CDS prices do not necessarily indicate that defaults are imminent. They reflect the cost of obtaining credit protection under prevailing market conditions.
What do rising CDS volumes indicate about the AI investment cycle?
The increase in CDS trading suggests that credit risk has become a more prominent consideration for investors assessing artificial intelligence-related companies.
Morgan Stanley’s figures show that weekly CDS activity involving major AI-linked issuers increased substantially between July and September, alongside a sharp rise in debt issuance during 2026.
Record CDS spreads for several technology companies indicate that protection has become more expensive, while the differences between issuers highlight varying assessments of financial risk.
The development also demonstrates how investors are using credit derivatives to manage exposure to an industry characterised by substantial capital expenditure and interconnected commercial relationships.
Future movements in CDS spreads will depend on factors including financing costs, company performance, debt issuance and demand for credit protection.