AI borrowing has revived the market for betting against corporate debt

A five-year credit-default swap pays if a borrower suffers a defined credit event. Its annual premium is quoted in basis points, so Nvidia’s 141.5-basis-point price means insuring $10mn of debt costs about $141,500 a year. Unlike a conventional insurance policy, the buyer need not own the underlying bonds, and the contract can be traded. That makes CDS both a hedge and a direct way to take a negative credit view.

The AI infrastructure boom has supplied a market that barely existed for technology borrowers a few years ago. Barclays calculates that net notional CDS across ten major hyperscalers and semiconductor companies is approaching $30bn, from under $7bn a year earlier. Those names now represent almost 14% of the US single-name CDS market, up from 4%, and about 20% of trading volume.

Oracle is the centre of activity. Nearly $7bn of protection is outstanding, and an average $2.3bn of contracts changed hands each week over the latest four-week period—more than twice the volume for Broadcom, Nvidia or Alphabet. That is striking for an investment-grade company, but it is consistent with Oracle’s position at the intersection of large data-centre borrowing, concentrated AI customers and long-dated capacity commitments. CoreWeave is the outlier whose swap price does indicate materially greater distress risk; the large public technology companies remain far from default territory.

The information lies in the combination of price, open interest and turnover. A rising premium says protection is more expensive. Rising open interest says more risk has been transferred. Rising volume says investors can change that exposure quickly. Conflating the three can make ordinary market development look like panic—or obscure a genuine repricing.

CDS on Oracle, Broadcom and AMD also trade more pessimistically than their cash bonds, creating a positive basis. Traders can try to exploit that gap by buying the cheaper form of credit exposure and selling the dearer one, but the divergence also says something substantive: derivatives have become the easier place to express doubts about whether enormous AI commitments will translate into timely cash flow. Equity markets price the upside of the boom; the revived CDS market is beginning to price who carries the financing downside.