The bond market is casting a vote against the unchecked expansion of AI infrastructure.
A financing frenzy for AI infrastructure is sending shockwaves through the credit market. On Monday, ICE Data Services reported that NVIDIA's five-year credit default swaps (CDS) posted their largest single-day spike on record. Oracle was downgraded by S&P, and Alphabet's free cash flow turned negative for the first time. The alarm bells from the credit market have spread from NVIDIA to the entire group of hyperscale cloud service providers.
Manish Kabra, Head of US Equity Strategy at Societe Generale, stated bluntly: "For hyperscale computing companies, you now need to look at CDS, not EPS."
The immediate trigger for this volatility is a series of massive financing guarantee deals that NVIDIA is advancing. According to sources familiar with the matter, NVIDIA is in talks with OpenAI to provide approximately $250 billion in financing guarantees to help OpenAI secure computing power for a 10-gigawatt data center project in Ohio. Simultaneously, NVIDIA is also discussing financing for a $350 billion project for OpenAI to purchase chips. Combined with the previously announced partnership with SK Group worth over $500 billion, the total value of AI infrastructure transactions potentially involving NVIDIA has now exceeded $750 billion.
The core concern in the market revolves around the "circular" nature of these transactions: NVIDIA provides financing or guarantees to its clients, who in turn buy NVIDIA's chips. Gary Tan, a portfolio manager at Allspring Global Investments, noted, "More and more capital is being used to finance future AI customers and infrastructure deployment." If AI demand falls short of expectations, this model could amplify losses across the entire chain.
NVIDIA shares fell 4.99% on the day, dropping its total market capitalization to $4.75 trillion and ceding the title of the world's most valuable company to Apple. Apple rose over 1% on the day, reaching a market cap of $4.95 trillion, marking its first time reclaiming the top spot since April 2025. The market has noted that Apple remains cautious in its AI capital expenditure, preferring to lease computing power rather than build its own infrastructure—a strategy that is gaining investor approval.
The CDS Alarm Spreads from NVIDIA Across the Industry
NVIDIA's five-year CDS rose approximately 14 basis points during intraday trading on Monday, reaching a peak of around 82 basis points per year. According to ICE Data Services, this was the largest intraday increase for the contract since it began active trading last November. This means that to purchase five-year default protection on $10 million of NVIDIA debt, one would now need to pay roughly $82,000 annually.
However, the credit market turmoil extends far beyond just NVIDIA.
Data from LSEG shows that the CDS prices for Oracle, SpaceX, Alphabet, Amazon, Meta, and Broadcom have all recently risen to all-time highs. For instance, Oracle's five-year CDS was quoted at 215 basis points on Monday, far above the 144 basis points seen at the start of the year. This implies an annual cost of $215,000 to buy default insurance on $10 million of debt.
Oracle's situation is particularly severe. The company announced last month that it would invest $70 billion in data center construction over the next year. Shortly after, S&P Global Ratings downgraded its credit rating to BBB-, just one notch above junk status, citing "uncertainty in the earnings path amid massive AI investment."
The situation at Alphabet is also attracting attention. Its CDS rose to an all-time high of 67 basis points on Monday, following the company's disclosure that its free cash flow turned negative in the second quarter for the first time in over two decades as a public company.
John Aylward, Chief Investment Officer at Sona Asset Management, a credit management firm, stated directly: "The credit market struggles with uncertainty, and the pace and cost of AI financing are highly unpredictable. This is causing a serious crisis of confidence."
Financing Costs Near Junk Levels: Meta Data Center Sends a Warning Signal
Behind the surge in CDS is a substantive repricing of AI infrastructure financing by the bond market.
The most illustrative example comes from Meta. The latest financing cost for its $12 billion data center in Texas has risen sharply, approaching the level of junk bonds. John Aylward noted that the debt "is being priced in line with where B- rated bonds trade... That is a pretty astonishing state of affairs, but it is the world we live in today."
The implication of this pricing signal is clear: investors are demanding a higher risk premium to absorb AI infrastructure debt, no longer treating it as ordinary investment-grade corporate debt.
David Brown, Co-Head of Investment Grade Global at Neuberger Berman, raised the market's core question: "The biggest question is whether this level of capital expenditure will grow permanently and when we will see the inflection point for a return to positive cash flow. We won't have an answer soon, which explains the weak performance."
Brown further warned: "This could become a problem because there is still such a massive amount of financing demand waiting to be completed within the industry."
George Catrambone, Head of Americas Fixed Income at DWS Group, pointed out that buying CDS has become a tool for investors to hedge against credit rating downgrades and market volatility. "Hedging is becoming increasingly common, especially after seeing these capital expenditure figures following earnings reports. A huge amount of debt has been issued without necessarily proving an increase in revenue. The market is applying more and more scrutiny."
Guarantee Chains: Google Ties to Anthropic, Systemic Risk Accumulates
This financing game is not unique to NVIDIA. Other tech giants are similarly deeply involved in financing AI supply chains using similar logic.
Google has agreed to guarantee lease payments for Anthropic at five data center locations, helping the OpenAI competitor secure approximately $35 billion in loans. The logic here is identical to NVIDIA's guarantees for OpenAI: large tech companies use their own creditworthiness to backstop AI firms that lack investment-grade ratings, enabling them to obtain low-cost financing. In return, these AI companies consume the cloud services, chips, or computing power of the same tech giants.
Sal Naro, Chief Investment Officer at Coherence Credit Strategies, described this model as "financial alchemy." "The 'financial alchemy' driven by opaque, off-balance-sheet transactions and intercompany relationships is concerning and could lead to credit rating downgrades."
Billy Leung, an investment strategist at Global X Management, noted, "NVIDIA's guarantee for more OpenAI data center debt will further deepen the already-scrutinized vendor financing model. It reflects both the funding pressures in AI construction and a signal of demand."
Regarding this, NVIDIA CEO Jensen Huang has held a different stance. Speaking about NVIDIA's investment in CoreWeave earlier this year, he said, "This is just a very small portion of the capital they will ultimately need to raise. The idea that this is circular financing—it's ridiculous." He believes these investments can both promote NVIDIA's own business and generate investment returns.
Bond Market Pressure Transmits to Stocks: CDS Replaces EPS as the New Observation Window
The turmoil in the credit market is starting to transmit to the stock market and has changed the way analysts observe hyperscale cloud service providers.
Manish Kabra, Head of US Equity Strategy at Societe Generale, stated: "For hyperscale computing companies, you now need to look at CDS, not EPS. AI capital expenditure is still outpacing cash generation, pushing the free cash flow of tech groups toward cyclical lows."
This assessment has already had a direct impact on the market. On Monday, the Philadelphia Semiconductor Index fell 2.23%, NVIDIA dropped nearly 5%, AMD fell about 5%, and ASML declined over 5%. The reaction was even more severe in the Korean market. SK Hynix saw its shares plunge as much as 11.1% on Tuesday, and Samsung Electronics fell 9.5%. The Korea Composite Stock Price Index (KOSPI) dropped nearly 8%, prompting the Korea Exchange to trigger the SIDECAR mechanism, suspending programmatic sell orders. SK Hynix's US-listed stock closed at $143.02, falling below its IPO price of $149.
According to Reuters, Han Ji-young, an analyst at Kiwoom Securities, pointed out that this sell-off was driven by multiple factors: risks in AI infrastructure financing, the impact of low-cost Chinese open-source AI models (such as Kimi K3) on computing power demand expectations, and competitive concerns following the listing of Chinese memory chip manufacturer CXMT.
Currently, the sustainability of AI capital expenditure remains the market's biggest question mark. The bond market's repricing is setting an increasingly hard-to-ignore financing ceiling for the still-unfolding AI infrastructure boom.
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