Big Techs Sink Under Debt in the 'AI Bonanza'... Oracle, NVIDIA and Others See Credit Ratings Slide

The race for dominance in Artificial Intelligence (AI) is pushing the credit risk of U.S. Big Tech companies to the brink. As they pour tens of billions of dollars into data centers and AI semiconductors, the timing of any return on that investment remains unclear, and the bond market is sounding the alarm first.
According to the Financial Times (FT) on the 27th local time, credit default swap (CDS) premiums for key AI investors, including Oracle, NVIDIA, Alphabet, Meta Platforms, Amazon.com, Inc., Broadcom Inc. and SpaceX, have recently surged to record highs. A CDS is a type of insurance purchased to guard against a company’s default risk, and a higher premium means the market sees greater credit risk. The criteria for judging corporate growth prospects have also shifted from earnings to financial soundness.
The most notable case is Oracle. Its five-year CDS jumped to 215 basis points (bp; 1 bp = 0.01 percentage point), about 50% higher than at the start of the year, when it stood at 144 bp. That means it would cost $215,000 a year to insure $10 million in bonds. After Oracle announced plans to invest $70 billion in data center construction over the next year, S&P Global downgraded its credit rating by one notch to BBB-, the lowest investment-grade level, citing the burden of investment and uncertainty over profitability.
Meta Platforms is also facing a growing AI investment burden. The interest rate on $12 billion in borrowing raised to build a data center in Texas has approached the level of speculative-grade corporate bonds. NVIDIA’s CDS also rose to a record 79 bp. The FT reported that NVIDIA is considering up to $250 billion in payment guarantees to help finance OpenAI’s 10-gigawatt data center project in Ohio. Alphabet also saw its CDS hit a record after free cash flow turned negative for the first time since its listing in the second quarter.
The bond market is more concerned about when massive capital spending will translate into earnings than about the expansion of AI investment itself. Recently, hedging demand from bond investors has also been rising quickly, especially for companies expanding AI spending. The way investors evaluate AI companies is changing as well. Until now, the scale of AI investment and growth potential were key to corporate value, but financial soundness and cash generation capacity have become more important measures. Manish Kabra of Societe Generale said, "Hyperscalers should be looking at CDS, not earnings per share (EPS)," adding that "as the scale of AI investment continues to outpace the pace of cash generation, free cash flow is falling to cyclical lows."
By contrast, Apple, which has cut AI investment for three straight quarters, is being revalued by the market. As of the close that day, Apple’s market capitalization reached $4.948 trillion, overtaking NVIDIA to become the world’s most valuable company for the first time in 15 months.
[email protected] Kim Kyung-min Reporter