Most people first heard of credit default swaps (CDS) from the 2008 financial crisis — or more likely, from the film The Big Short, where Michael Burry famously bet against subprime mortgages by buying CDS on obligations he didn't even own.
These derivatives act like insurance: buyers pay premiums to sellers for protection against a borrower defaulting on debt.
Fast-forward to late 2025, and CDS are surging again — this time as a hedge against the AI boom turning bust. According to data from the Depository Trust & Clearing Corporation (DTCC), trading volumes in CDS tied to several major U.S. tech companies have risen 90% since early September, as investors grow wary of the massive debt fueling AI infrastructure.
One market participant summed it up: "People have shifted from thinking there’s virtually no credit risk to acknowledging that some risk does exist."
Oracle has become the poster child for these concerns. With a lower credit rating than hyperscaler peers (BBB+), Oracle carries over $100 billion in debt, much of it to fund data centers heavily reliant on deals with key clients like OpenAI.
Following disappointing quarterly earnings and delays in data center projects (pushed to 2028 due to labor and material shortages), Oracle's five-year CDS spreads spiked to around 126-151 basis points — the highest since the 2009 crisis era, per S&P Global and ICE Data Services. For context, that's far above Nvidia (~37 bps) or Meta (~50 bps).
Oracle-specific CDS trading exploded too: DTCC reports an average daily notional of $75 million in Q3 2025, up 650% year-over-year, landing it in the top 20 most-traded corporate names.
Broader tech borrowing fuels the fire — Meta, Amazon, Alphabet, and Oracle raised $88 billion in bonds this autumn alone, with JPMorgan forecasting up to $1.5 trillion in investment-grade issuance by 2030 for AI projects.
This reflects a "clip-thinking" mentality infiltrating finance: trillions pledged over five years spark euphoria, but short-term delays or misses trigger immediate panic. Investors aren't betting on imminent defaults — they're protecting portfolios from delayed AI payoffs amid high leverage and capex.
As one credit strategist noted, the market is pricing in risks that equity optimists might overlook. If returns lag further, expect more hedging — and wider spreads. The AI hype train is still rolling, but credit markets are applying the brakes.
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Author: Slava Vasipenok
Founder and CEO of QUASA (quasa.io) - Daily insights on Web3, AI, Crypto, and Freelance. Stay updated on finance, technology trends, and creator tools - with sources and real value.
Innovative entrepreneur with over 20 years of experience in IT, fintech, and blockchain. Specializes in decentralized solutions for freelancing, helping to overcome the barriers of traditional finance, especially in developing regions.
