Nvidia CDS hits record as $750B in AI deals stoke fears

The cost of insuring Nvidia ↘ 4.99% debt against default surged by the most on record Monday, as investors recoiled from reports that the chipmaker is negotiating more than $750 billion in artificial intelligence infrastructure deals that critics say amount to circular financing.

Nvidia's five-year credit default swap climbed approximately 14 basis points to around 82 basis points per year, according to ICE Data Services — the largest single-day intraday gain since the contracts began actively trading last November. Nvidia shares fell nearly 5% on the session, costing the company its title as the world's most valuable public company and handing the crown back to Apple ↗ 1.17%.kucoin+3

A Web of AI Financing

The spike followed a report by The Wall Street Journal, confirmed by Reuters Thomson Reuters Corporation ↗ 8.44%, that Nvidia is in talks to provide a roughly $250 billion guarantee to help OpenAI lease a 10-gigawatt data center campus that a SoftBank subsidiary is developing in southern Ohio. Nvidia is also separately discussing financing $350 billion of OpenAI's chip purchases for the project.finance.yahoo+3

Those discussions are part of a broader $750 billion-plus wave of commitments, including a deal worth more than $500 billion with SK Group, the parent of chipmaker SK Hynix, to build AI data centers on the Korean Peninsula. Skeptics warn the arrangements artificially inflate demand across the industry, with Nvidia effectively financing its own customers' purchases of its products.youtube+1

Credit Stress Spreads Across the Sector

The alarm was not confined to Nvidia. CDS spreads for Oracle ↗ 4.27%, SpaceX, Alphabet ↗ 2.34%, Amazon Amazon.com, Inc. ↘ 0.31%, Meta ↘ 0.22%, and Broadcom ↗ 0.34% have all surged to record highs in recent days, according to LSEG data. Oracle's five-year CDS was quoted at 215 basis points Monday, up from 144 basis points at the start of the year, weeks after S&P Global Ratings downgraded the company to BBB- on July 9 — one notch above junk — citing AI infrastructure investments that had weakened its credit profile.wsj+3

Alphabet's CDS rose to a record 67 basis points Monday after the company reported negative free cash flow of $5.9 billion in the second quarter — the first time it has burned cash since going public in 2004 — driven by $44.9 billion in capital expenditures.moomoo+2

'Watch CDS, Not EPS'

"For hyperscalers, watch CDS, not EPS," said Manish Kabra, head of U.S. equity strategy at Société Générale, in comments reported by the Financial Times on Sunday. The warning captures a broader shift in how investors assess mega-cap technology companies, as credit markets increasingly price in the risk that the AI spending race could overwhelm even the strongest balance sheets.sageadvisory+3