The explosive race of investments in artificial intelligence by the tech giants of the USA is beginning to cause serious turbulences on Wall Street, as banks are forced to turn more and more to complex credit derivatives to continue financing the so-called hyperscalers companies. Meta Platforms, Alphabet, Microsoft, Amazon and Oracle have already raised over 250 billion dollars worldwide for the development of artificial intelligence infrastructure and systems, according to market estimates. The size of this financing has begun to bring the large banks close to the risk limits allowed by regulations for exposure to a single corporate client.
The explosion of CDS
To limit credit risk, banks are turning more and more to Credit Default Swaps, CDS, meaning insurance derivatives against a potential default of a borrower. In simple words, banks buy insurance for the eventuality of a debt default by Big Tech, so that they can continue to finance them, to undertake bond issuances and to participate in huge AI deals. The demand for these derivatives has skyrocketed the cost of protection to unusually high levels even for companies with top credit ratings.
Hedge funds see a golden opportunity
This situation has created a new field of profitability for hedge funds, which sell CDS protection considering that the market is overpricing the risk of Big Tech. Andrew Weinberg of Saba Capital Management stated that it is the largest opportunity in AA-rated CDS in many years, arguing that the yields offered reminiscent of companies of much lower creditworthiness. A characteristic example constitutes Meta. The five year CDS of the company are trading at approximately 0.73 percentage points annually, allowing hedge funds to collect approximately 73,000 dollars annually for every 10 million dollars of protection they sell. The remarkable thing is that Meta maintains an extremely high credit rating — AA- by S&P and Aa3 by Moody’s — something that theoretically means very little risk of default.
Banks fear overconcentration of risk
According to market executives, the huge exposure of banks to Big Tech through loans, swaps and data centers financings is beginning to cause serious concerns. Bank of America revealed that the volumes of CDS transactions related to hyperscalers have increased by ten times since the beginnings of 2025. Matt Mandell, head of the single-name CDS sector of the bank, stated that a large part of the demand comes from the so-called CVA desks of the banks, which manage risk hedges. Banks buy CDS to open more space in their credit lines and to be able to continue lending to the hyperscalers, he characteristically reported.
AI can become the next big credit bubble
The market estimates that total spending on AI infrastructure could reach 5 trillion dollars by 2030, something that may create new systemic risks for the global financial system. Already, the speed with which borrowing increases for data centers, GPU infrastructure and AI energy infrastructure has begun to remind several analysts of previous financial bubbles. Morgan Stanley warned that, despite the strong credit profile of Big Tech, the continuous increase of debt concentrates a huge risk in a very small number of companies. The strategic analysts Vishwas Patkar and Joyce Jiang noted that the degradation of quality remains a real risk, pointing out that the market is perhaps underestimating the systemic exposure being created around the AI economy.
The AI frenzy is changing all of Wall Street
The explosion of artificial intelligence is not affecting only Big Tech but the entire financial ecosystem. JPMorgan created a new package of CDS that allows bets against the debt of five hyperscalers. S&P Dow Jones added Meta, Alphabet and Microsoft to the CDX Investment-Grade index. The private credit funds are turning more and more to the financing of data centers and AI infrastructure. Banks are trying to catch new debt issuances before interest rates increase even more. At the same time, the skyrocketing of the yields of American bonds intensifies the pressures on businesses to borrow immediately before the cost of financing becomes even more expensive.
A new cycle of financial risk?
Many on Wall Street are now beginning to wonder whether the AI mania is creating the prerequisites for the next big credit market crisis. Artificial intelligence is considered the largest technological revolution of recent decades. However, behind the enthusiasm for the trillions being invested, banks, hedge funds and investors are already betting huge amounts on complex derivatives to protect themselves from a scenario that few want to discuss openly yet: that AI may evolve into the largest financial bubble of our time as well.
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