Key facts
- Cost of insuring against US tech defaults reached record highs on Thursday.
- Investor concerns are focused on credit stress in the AI trade.
- CoreWeave's five-year credit default swap spreads exceeded 1,000 basis points.
- Oracle's five-year credit default swap spreads were quoted at 288 basis points.
- SoftBank's five-year credit default swap spreads widened to 424 basis points.
The cost of insuring against US technology company defaults reached record highs on Thursday, signaling growing credit stress within the artificial intelligence sector. Investor concerns are amplified by hotter-than-expected US inflation data and the prospect of sustained higher interest rates, which are increasing worries about the ability of highly leveraged companies to service their debt as massive AI investments are made. Data centre operator CoreWeave, which owes nearly $50 billion, is at the center of these concerns, with its five-year credit default swap spreads exceeding 1,000 basis points. Its 2032 debt was trading at around 78 cents on the dollar, yielding over 16%. Other tech giants like Oracle and SoftBank also saw their default insurance costs rise, though less dramatically than CoreWeave. Broadcom CEO Hock Tan likened the investor enthusiasm for AI-related assets to "casino gambling."