Cost of AI default insurance spikes as data centre confidence wobbles

SINGAPORE, Oct 15 — The cost of insuring against US tech defaults has ​hit record levels in the latest sign of credit stress building in the AI trade, especially for data ‌centres dependent on future revenue.

The moves reflect rising investor concern over how quickly ⁠massive investments in artificial intelligence ​will translate into profits, and ⁠whether heavily indebted companies can generate returns fast enough ‌to service mounting ‌interest costs.

Five-year credit default swap spreads at cloud computing ⁠giant Oracle widened by 26 basis ⁠points overnight to a record 288 bps, according S&P Global Market Intelligence.

Five-year spreads for AI investor SoftBank widened 24 bps to 424 bps. For data-centre operator CoreWeave they have blown out past 1000 bps, according to LSEG data.

Credit ‌default swap spreads show the number of ​basis points charged for default protection. The greater the perceived risk of a credit event, the wider the spread and Oracle's figure represents a cost of $2.88 to insure $100 worth of bonds.

CoreWeave, a loss-making data-centre operator which owes nearly $50 billion according to LSEG data, is in the eye of ​the storm. Its debt prices are tumbling with 2032 paper ‌changing hands at ‌77 ⁠cents on the dollar.

Shares fell 15% on Wednesday and another 6% after market, vaporising a fifth of their value.

Credit default swap spreads for Amazon, Alphabet , Meta, and Nvidia also hit record ‌wide levels, data from ​LSEG and S&P Global Market ‌Intelligence showed, though at ⁠much smaller ​spreads than Oracle.

(Reporting by Tom Westbrook; Editing by Christopher Cushing and ​Shri Navaratnam)

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