Debt investors are concerned about tech giants borrowing excessively to develop powerful AI, driving interest in credit derivatives. Contracts tied to high-grade Big Tech companies like Alphabet and Meta Platforms are actively traded. With AI investments exceeding $3 trillion, hedging demand is expected to rise as tech companies become more indebted.

Hyperscalers are easily financing their plans in the debt market, with Alphabet recently raising $32 billion in debt. Morgan Stanley predicts hyperscalers will borrow $400 billion in 2026, up from $165 billion in 2025. Some investors are buying protection against potential defaults, with the cost of protection rising.

Banks underwriting tech giants’ debt are buying single-name CDS to hedge risks, as deals are large and fast-paced. Wall Street dealers are meeting the demand for protection, with hedge funds seeing an opportunity to profit. While leverage is low, some traders worry about complacency and mispriced risk in the market.

Alphabet Inc. raised nearly $32 billion in debt to fund AI build-out, with a record-breaking 100-year bond sale. Elon Musk’s bankers are working on financing plans post-merger, while private equity investors are engineering a debt buyback at Electronic Arts Inc. Citadel accuses a former employee of violating agreements, and Wall Street dealers demand higher compensation for trading private credit bonds.

Ares Management provides $2.4 billion in debt financing to Vantage Data Centers for infrastructure. Junk bonds worth $3.8 billion for a data center leased by Nvidia Corp. were sold. Lenders to FAT Brands Inc. dropped a demand against the CEO. Citadel Securities recruits Morgan Stanley’s Richard Smerin, and DWS Group appoints Oliver Resovac to oversee private markets. Wells Fargo names Luis Alvarado as co-head of global fixed-income strategy, while Bain Capital hires Michael Horowitz as a partner.

Read more at Yahoo Finance: AI Bubble Fears Are Creating New Derivatives