AI Hyperscalers Face Record Credit Default Swap Costs Amid Spending Concerns

The price of credit default swaps (CDS) for AI hyperscalers has reached record highs, reflecting growing concerns in the bond market about the sustainability of these companies' aggressive capital spending. In late July 2026, Oracle's five-year CDS spread hit approximately 212 basis points, translating to an annual cost of $212,000 to insure $10 million of its debt against default.

Oracle is one of five major hyperscalers—including Alphabet, Amazon, Meta, and Microsoft—who have been borrowing heavily, with their collective bond issuance averaging around $28 billion annually from 2020 to 2024. This figure skyrocketed to $121 billion in 2025, and Goldman Sachs projects that their cumulative capital expenditure will reach $1.15 trillion by 2027.

Investor anxiety is exacerbated by Alphabet's recent report of negative free cash flow for the first time since its IPO in 2004, primarily due to its AI expenditures. The total off-balance-sheet lease commitments for these hyperscalers are nearing $1.65 trillion, indicating a more leveraged position than traditional debt metrics suggest.

In response to these concerns, JPMorgan launched a customizable CDS basket product in early 2026, allowing investors to hedge against the collective credit risk of these companies. As trading volumes in single-name CDS for these hyperscalers have surged, the mismatch between current spending and the uncertain revenue from AI investments has become a focal point for investors.

While a default is not imminent, the rising costs of insuring against default for companies that have historically been stable raise questions about the bond market's perception of risk compared to equity markets.