The chart shows that the cost of default protection for Meta and Broadcom has risen to approximately 90 basis points, while Nvidia, Amazon, and Alphabet have also risen to approximately 65-70 basis points, all at recent record highs. At 90 basis points, it would cost approximately $90,000 to purchase one year's protection for $10 million in debt. Oracle faces even greater pressure, with its five-year CDS rising from 144 basis points at the beginning of the year to 215 basis points.
This does not mean the bond market is predicting an imminent default by tech giants, but rather that it is beginning to increase its risk compensation for the uncertainty of AI financing. Capital expenditures by high-performance computing companies are projected to reach approximately $875 billion this year. Alphabet and Oracle have recently turned negative in free cash flow, and some companies are continuing to expand their data centers through bond issuance, leasing, and financing guarantees.
The bond market is concerned that while the pace of investment continues to increase, the speed of AI revenue, profits, and cash recovery remains difficult to predict. However, trading in individual company CDS may be relatively quiet, and small transactions can amplify price fluctuations. Therefore, the current situation is closer to a widening credit confidence discount, and cannot yet be directly defined as a default crisis.
