When a company borrows money, lenders and insurers want to know they will get paid back. The price of that insurance - known as a credit default swap, or CDS - has been climbing fast for many of the biggest names in tech.
Oracle is one of the most striking examples. SpaceX, which started trading swaps just last month, already sits at around 185 basis points - more than half higher than where it began.
The even bigger shockers are in the firms that have borrowed the most to feed the AI boom. CoreWeave, a former crypto miner that now runs about 50 data centers, is rated junk and has had negative free cash flow since at least 2022. Its insurance cost of 855 basis points is the highest among major tech companies invested in AI.
Even the blue-chip names are not immune. Alphabet went from about 50 in March to more than 65. Microsoft, which still carries AAA credit ratings and has not sold bonds since 2017, saw its insurance cost creep from about 35 at the end of last year to about 53 basis points.
Behind these rising numbers lies a simple worry: tech companies are spending enormous sums on artificial intelligence, and nobody is sure how much of that spending will turn into real profit.
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The borrowing numbers are staggering. In February, Oracle raised $25 billion by issuing high-grade corporate bonds in the US. Meta did the same in April.
Amazon has issued $62 billion worth of US bonds this year. Investment firm BlackRock issued a $12.5 billion bond on Monday with a yield of 7.53%, among the highest yields recorded for blue-chip data-center debt since the AI borrowing surge began last year.
That debt has to get paid back. And with interest rates still elevated, the cost of that debt is rising too. Oracle's 2054 bonds now yield 7.8%, up by almost one percentage point since the start of 2024.
The market is getting picky. Miller Tabak's chief market strategist, Matt Maley, said, "The market is picking winners and losers in the AI race, and the number of companies on the negative side is growing."
Why does it matter? Alphabet reported a negative quarterly free cash flow for the first time since its initial public offering more than two decades ago. CoreWeave, a junk-rated borrower, is looking to borrow another $2.6 billion in the loan market. When the cash flowing in can't cover what's flowing out, the risk of default climbs.
The next few weeks could tell us a lot about where this is headed. Companies including Amazon, Meta, and Microsoft are reporting quarterly results this week. Those reports may include more details about their future spending plans - and whether they expect those plans to start earning a return.
The real risk, according to Torsten Slok, Apollo Global Management's chief economist, wrote in a note: "As issuance surges, the question is whether the all-in yield climbs to a level where the marginal data-center dollar no longer clears its return hurdle, forcing the capex cycle to self-throttle."
For investors, this is not a reason to panic. It is a reason to pay attention. The companies that pull off the AI transition could become even stronger.
The ones that borrow too much without delivering results could face real trouble. Keep an eye on borrowing costs. Rising CDS prices and climbing bond yields are early warning signals.
They do not guarantee a crash - but they do say the market is getting nervous.
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