At the San Francisco AI Summit, Korea and U.S. corporations moved to launch large-scale artificial intelligence (AI) cooperation, but the credit default swap (CDS) premiums of big tech firms such as NVIDIA, the actual investors, jumped sharply. The move is seen as reflecting market caution that funding burdens could grow if the AI investment race stretches on.
According to Bloomberg and other foreign media on the 28th, NVIDIA's five-year CDS premium surged 14 basis points intraday the previous day to 82 basis points. Bloomberg said it was "the biggest intraday rise since November, when swap transactions began to pick up."
A CDS is a type of insurance purchased to compensate for losses if a bond-issuing corporations defaults. A rise in the CDS premium means the market is assessing the corporations' credit risk higher than before, or reflecting the possibility that future funding expense could increase.
The market views a string of recently announced large-scale AI investment plans as driving the CDS gains. On the weekend, NVIDIA at the AI Summit in San Francisco, United States, moved into a comprehensive partnership with SK Group to build AI infrastructure worth $500 billion. News also emerged that OpenAI is discussing a $250 billion plan to lease computing power from U.S. data center projects.
As doubts grow over the sustainability of AI investment, CDS premiums for not only NVIDIA but also Oracle, SpaceX, Alphabet, Amazon, Meta, and Broadcom—AI big tech corporations—have all soared to record levels in recent days. The Financial Times (FT) of the United Kingdom said, "Market concerns over big tech's astronomical AI investments are being reflected in the credit market."
Oracle's CDS premium rise was particularly notable. Oracle's five-year CDS premium reached 215 basis points on the 27th (local time), climbing to a record level. Alphabet's CDS premium also hit 67 basis points, a record high since transactions began in late November last year.
However, some in the market say it is too early to read this as a signal of reduced AI investment. The analysis is that the rise in CDS premiums reflects moves to prepare for credit risk and funding burdens that can arise as investment scales expand rapidly.
George Catrambone, head of fixed income at DWS Group, said, "Investors assign a low probability of debt default to investment-grade issuers, but appear to be protecting themselves from future credit rating downgrades and market volatility by buying CDS."
Brokerages believe U.S. interest rates and stocks must stabilize first for CDS premiums to settle. Lee Eun-taek, a researcher at KB証券, said, "Looking at past cases where Oracle's CDS premium stabilized, a recovery in risk appetite played a role," adding, "If the Federal Reserve eases rate jitters and long-term rates stabilize, and U.S. big techs deliver solid earnings, CDS premiums for AI corporations, including Oracle, are likely to gradually stabilize."