A new shift is emerging across global markets as lenders quietly hedge against the rapid, debt-fueled expansion of major AI players. According to Reuters, Boaz Weinstein’s Saba Capital Management has been selling credit default swaps (CDS) to banks seeking protection on Oracle, Microsoft, Meta, Amazon, and Alphabet, amid growing fears that the AI investment boom may be overheating.
Banks are increasingly looking to shield themselves from the risk that Big Tech’s aggressive AI spending — financed largely through record-breaking bond issuances — could trigger a correction if the current AI enthusiasm proves to be a bubble. This marks the first time Saba has sold hedging protection on several of these companies, reflecting a noticeable uptick in demand.
Despite this move, current CDS levels still indicate relatively low perceived default risk compared to other sectors. Yet activity is growing sharply:
- Oracle and Alphabet CDSs are trading at their highest levels in two years.
- Meta and Microsoft CDS levels have surged in recent weeks, with Meta’s available data starting only from late October.
- Oracle’s 5-year CDS climbed above 105 basis points, while Alphabet and Amazon traded around 38 bps, and Microsoft near 34 bps.
This comes as AI hyperscalers rapidly accumulate debt to finance multibillion-dollar infrastructure projects. The scale is unprecedented:
- Meta raised $30 billion in debt last month.
- Oracle raised $18 billion in September.
- Alphabet also tapped the bond market aggressively.
In total, Big Tech issued more than double its average annual investment-grade debt within just September and October, according to BofA.
While some analysts emphasize that bond spreads still remain below the broader investment-grade benchmark — supported by hyperscalers’ strong balance sheets — others warn that credit markets may be pricing in early signs of stress. Bank of America strategist Michael Hartnett summarized sentiment bluntly in his weekly “flow show”: “Best short is AI hyperscaler corporate bonds.”
As AI transforms industries and drives unprecedented capital flows, the rise in credit hedging suggests that sophisticated institutions are preparing for both the upside — and the potential fallout — of Big Tech’s accelerated, debt-intensive race to dominate the next era of AI infrastructure.