Bearish Investors Hedge Against AI-Linked Debt Risks as Tech Sell-Off Accelerates

Wall Street's tech sell-off gained momentum last week, triggering a surge in hedging activity after Oracle and Broadcom reported disappointing earnings. Oracle Corporation, once a stalwart of steady revenue, has emerged as a focal point for AI-related credit risks. The cost of insuring its debt through credit default swaps (CDS) has reached levels unseen since the 2009 financial crisis.

CDS trading volumes spiked in September, reflecting growing investor unease. Tech financials remain volatile as markets digest earnings and anticipate the impact of AI products from OpenAI, Google, and Anthropic. Oracle and CoreWeave saw particularly sharp increases in CDS activity as both companies raise significant debt to expand data center capacity. Meta also entered the spotlight after issuing $30 billion in bonds to fund AI initiatives.

JPMorgan's Nathaniel Rosenbaum observed single-name CDS volumes ROSE substantially this quarter, driven primarily by hyperscalers investing heavily in U.S. data centers. A senior executive at a major U.S. credit investment firm concurred with this assessment, signaling broad institutional concern about the sector's debt-fueled AI expansion.