Cost of insuring US tech debt against default hits record as AI credit stress builds
The price of credit default swaps on US tech companies has reached record levels, a sign of growing credit stress in the AI trade, especially among data-centre firms reliant on future revenue. None of the companies concerned has defaulted or signalled it may.
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The story, neutrally told
Centre · 1The cost of insuring against potential defaults by US tech companies has hit record levels, in what CNA's explainer calls the latest sign of credit stress in the so-called AI trade, especially for data centres dependent on future revenue. CNAN “The cost of insuring against the risk of potential US tech defaults has hit record levels in the latest sign of credit stress building in the so-called AI trade” Read at CNA ↗ Centre · 1CDS for CoreWeave, a heavily indebted data centre operator described as at the eye of the storm, have risen above 1,000 basis points, according to S&P Global Market Intelligence data, implying roughly a 63 per cent chance of default over five years, up from around 30 per cent a year earlier. CNAN “CDS for CoreWeave, a heavily indebted data centre operator at the eye of the current storm, have risen above 1,000 bps, S&P Global Market Intelligence data show.”“They suggest a roughly 63 per cent chance of a default over the next five years, up from around 30 per cent a year ago.” Read at CNA ↗ Centre · 1Oracle's CDS has traded at nearly 300 bps, Meta's at around 104 bps and Nvidia's at around 90 bps after a sharp rise in recent weeks, compared with about 60 bps for an index of investment-grade CDS. CNAN “Oracle has seen its CDS trade at nearly 300 bps, well above those of other AI-linked companies.”“Nvidia CDS have also risen sharply in recent weeks to around 90 bps, Meta CDS are trading around 104 bps.” Read at CNA ↗
Centre · 1Demand for AI-linked CDS has surged even for Apple, Amazon and Microsoft, while the cost has risen faster for more heavily indebted competitors, suppliers and customers. None of the companies whose CDS have risen has defaulted or signalled it may. CNAN “Demand for AI-linked credit default swaps (CDS), a form of insurance against default that gained prominence during the 2008 financial crisis, meanwhile has surged, even for heavyweights like Apple, Amazon and Microsoft.”“None of the companies whose CDS have risen recently have defaulted on their obligations or signalled that they may do so.” Read at CNA ↗ Centre · 1Shares in AI-boom companies remain among the biggest gainers on global equity markets this year, but many have fallen sharply in recent weeks as investors reassess the cost of capital amid rising interest rates and inflation, and some doubt when, or whether, the billions invested in data centres and computing power will pay off. CNAN “many have fallen sharply in the past few weeks, as investors reassess the cost of capital against a backdrop of rising interest rates and inflation.”“There are also doubts among some investors and analysts about when, and in some cases, if, the billions of dollars pouring into data centres, computer power and other infrastructure will pay off.” Read at CNA ↗ Centre · 1The single-name CDS market is worth about $9 trillion, per ISDA, a small part of global bond markets holding more than $150 trillion of debt securities according to BIS data. Average daily CDS trading was $16 billion in the second quarter, up from $13 billion a year earlier, and thin trading in individual names means small transactions can move prices significantly. CNAN “The market for single-name CDS, which cover the bonds of a single issuer, is worth about $9 trillion, the International Swaps and Derivatives Association (ISDA) said.”“But average daily trades, even for large companies, can sometimes be in the single digits, meaning small transactions can have an outsized impact on prices.” Read at CNA ↗
Centre · 1The explainer notes that rising protection costs can prompt investors to sell bonds and raise issuers' borrowing costs, potentially creating a self-reinforcing cycle, and that payouts are not guaranteed: a committee ruled that Credit Suisse's 2023 takeover by UBS did not trigger a CDS payout. CNAN “That can amplify concerns about creditworthiness and potentially create a self-reinforcing cycle.”“the EMEA Credit Derivatives Determinations Committee (CDDC) ruled that event would not trigger a CDS payout.” Read at CNA ↗ Centre · 1A day later, The National's geo-economics editor Manus Cranny covered the theme in a markets segment headlined that AI cloud companies face an $8.5 trillion debt challenge. The NationalN “Manus on Markets: AI cloud companies face a $8.5 trillion debt challenge”“Manus Cranny, The National's geo-economics editor, cuts through the noise” Read at The National ↗
Every sentence links to the reporting it rests on. The pill in front of each says where its sources sit: Left, Centre or Right when one side supplies at least half of them, Mixed when they are evenly split. The number is how many outlets it cites.
Left0 outlets
No left outlet in our sources has covered this story yet.
Centre2 outlets
- Framing
- CNA's explainer treats the record CDS costs as a sign of building credit stress in the AI trade, while explaining how CDS work and stressing that no company has defaulted. The National frames the issue as an $8.5 trillion debt challenge for AI cloud companies in a markets commentary segment.
- Emphasis
- CNA: mechanics of CDS, CoreWeave's implied default odds, market size and the risk of a self-reinforcing cycle. The National: the scale of AI cloud debt.
- Leaves out or plays down
- CNA gives no company comment or forecast. The National's piece gives no detail behind the $8.5 trillion figure.
- Charged language
- “credit stress”“at the eye of the current storm”“$8.5 trillion debt challenge”
- For example
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“the latest sign of credit stress building in the so-called AI trade” — CNA
“AI cloud companies face a $8.5 trillion debt challenge” — The National
Right0 outlets
No right outlet in our sources has covered this story yet.
What every side reports
- AI-linked credit stress, particularly debt of AI cloud and data-centre companies, is a growing concern for markets.
Left0 articles
No coverage yet.
Centre2 articles
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CNAN ·
Explainer-Why are credit default swaps unnerving AI investors?
Neutral Explainer on why record CDS costs unnerve AI investors, balanced with caveats that no defaults have occurred and the CDS market is small and thinly traded.
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The NationalN · · Opinion
Manus on Markets: AI cloud companies face a $8.5 trillion debt challenge
Alarmist Market commentary segment whose headline stresses a very large debt burden facing AI cloud companies.
Right0 articles
No coverage yet.
- 15 Oct 12:32 First CNAN Explainer-Why are credit default swaps unnerving AI investors?
- 16 Oct 09:08 +20h 37m The NationalN Manus on Markets: AI cloud companies face a $8.5 trillion debt challenge Opinion
Times are when each article was published, or when we first saw it if the outlet gave no time.
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