Credit default swap costs for CoreWeave and Oracle rise as investors hedge AI debt

The cost of credit default swaps tied to AI-linked companies rose this week as investors sought protection against defaults, with CoreWeave and Oracle among the largest increases, Semafor reported on Oct. 15.1

Semafor reported that investors are worried about how much capital it will take to scale up artificial intelligence and how quickly revenue will arrive to support it.1 Reuters reported that hotter-than-expected US inflation data and expectations of higher interest rates added to concerns about whether heavily indebted companies can earn returns fast enough to service interest costs.2

Semafor reported that the cost to insure $1 million of CoreWeave's bonds against default for five years has risen from under $40,000 a year ago to $100,000 today. Reuters, citing S&P Global Market Intelligence data, reported that five-year CDS spreads for CoreWeave "blew past 1,100 bps" on Thursday.12

Semafor reported that hedging against an Oracle default has risen 12% in a week, with a $1 million policy costing $28,000, and that Oracle has $160 billion of debt just above junk status.1

According to Semafor, Oracle last month informed one of the lenders, including Blue Owl, that it would defer lease payments and other financial obligations tied to the deal if the New Mexico datacenter fails to come online as planned in 2028; Semafor also reported that Oracle still has to pay some interim costs, as well as the rent for the space.1

Semafor reported that a deal for Volta Infrastructure faltered this week as investors demanded higher yields on data-center debt; Reuters reported CDS spreads for Amazon, Alphabet and Meta also hit record highs but rose more slowly than Oracle's or CoreWeave's.12