At Monday’s US market close, NVIDIA (NVDA) dropped nearly 5%, while Apple (AAPL) gained over 1%. NVIDIA’s market cap fell to roughly $4.77 trillion, allowing Apple to reclaim the global top spot at $4.95 trillion—the first time Apple has held this position since April 2025. This reshuffling of positions appears to be a normal market fluctuation on the surface, but beneath it, the credit market is sending a distinctly different set of signals.
On the same day, NVIDIA’s five-year Credit Default Swap (CDS) surged by approximately 14 basis points intraday, hitting a high of around 82 basis points per annum—the largest intraday increase for this contract since it began active trading in November last year. Buying five-year default protection on $10 million of NVIDIA debt would now cost roughly $82,000 annually.
Manish Kabra, Head of US Equity Strategy at Societe Generale, put it bluntly: “For hyperscaler computing companies, the focus now should be on CDS, not on EPS.”
CDS is a credit default swap, used by the bond market to price the risk of a company defaulting on its debt. A rising CDS indicates that the bond market perceives the company’s creditworthiness is deteriorating. NVIDIA is the world’s most profitable chip company, with FY2026 revenue of $215.9 billion, net profit of $120 billion, and free cash flow of $96.7 billion. The market’s fear behind the surge in its CDS is not about its profitability, but about what it is doing.
Year-to-date in 2026, NVIDIA (NVDA) stock has risen only 4%, while Apple (AAPL) has gained 24%. This divergence is not accidental. Apple has consistently shown restraint in AI capital expenditure, preferring to lease computing power rather than build its own infrastructure, with capital spending declining over the past three quarters.
As NVIDIA and a host of tech giants pour hundreds of billions into AI infrastructure, Apple has chosen a different path. Jay Woods, Chief Market Strategist at Freedom Capital Markets, offered a direct assessment: “Apple was once criticized for under-investing in AI, but as things stand now, it has successfully avoided the capital expenditure trap.”
Understanding the 'Circular Financing' Mechanism: A $250 Billion Guarantee Is Four Times the Cash Reserve
What is NVIDIA doing?
According to a July 26 report from The Wall Street Journal, NVIDIA is in talks with OpenAI to provide approximately $250 billion in financing guarantees, helping OpenAI secure computing power from a 10-gigawatt data center project being developed by SoftBank Group in Ohio. Simultaneously, NVIDIA is also discussing financing for a $350 billion project to procure chips for OpenAI. Combined with its previously announced over $500 billion partnership with SK Group, the total potential AI infrastructure transactions involving NVIDIA now exceed $750 billion.
One figure is worth repeated consideration: As of the end of FY2026 (January 25), NVIDIA held cash and marketable securities totaling about $62.6 billion. The $250 billion guarantee is roughly four times this cash reserve. Furthermore, NVIDIA’s latest 10-Q filing shows that the total cap on disclosed partner facility lease guarantees is only $3.5 billion—making the $250 billion figure 71 times larger.
The Wall Street Journal describes this model as a “Credit Wrapper”: investment-grade tech giants use their own balance sheets to guarantee financing for portfolio companies, enabling them to access low-cost debt they wouldn't otherwise obtain. Currently, neither OpenAI nor Anthropic has an investment-grade credit rating.
The core issue lies in its “circular” nature: NVIDIA provides financing or guarantees to its customers, which in turn buy NVIDIA’s chips. OpenAI has already raised its computing budget before 2030 from approximately $600 billion to around $750 billion.
Gary Tan, Portfolio Manager at Allspring Global Investments, stated, “An increasing amount of capital is being used to finance future AI customers and infrastructure deployment.”
Sal Naro, Chief Investment Officer at Coherence Credit Strategies, called this model “financial alchemy,” expressing concern that “opaque, off-balance-sheet transactions and inter-company relationships” could lead to credit rating downgrades.
This model is not unique to NVIDIA. Google has agreed to guarantee lease payments for Anthropic at five data center locations, helping the OpenAI competitor secure loans equivalent to about $35 billion. The logic is the same: large companies use their own credit to help AI firms obtain low-cost financing, which in turn consumes the large companies’ cloud services, chips, or computing power.
In January, NVIDIA CEO Jensen Huang addressed such skepticism regarding the investment in CoreWeave, saying, “This is just a small part of the capital they will ultimately need to raise. The idea that this is circular financing is absolutely absurd.” He argued that these investments both promote NVIDIA’s own business and generate returns.
With both perspectives laid out, the market has for now chosen the former. Renowned investor Michael Burry, the inspiration for the film “The Big Short,” has been increasing his short position against NVIDIA. On July 25, he wrote on Substack to expand his short position further, citing the Bank for International Settlements (BIS) 2026 annual report, which stated that a significant portion of NVIDIA’s current and future demand “does not come from end customers, but is cyclically driven by off-balance-sheet financing arrangements.” Burry had previously predicted a correction of about 30% in the semiconductor sector.
From NVIDIA to Oracle: The Credit Confidence Crisis Spreads
NVIDIA is not the only company seeing its CDS rise.
According to LSEG data, CDS prices for Oracle, SpaceX, Alphabet, Amazon, Meta, and Broadcom have all recently risen to record highs.
Oracle’s situation is particularly severe. On July 9, S&P Global Ratings downgraded Oracle’s long-term credit rating from BBB to BBB-, just one notch above junk status. S&P estimates Oracle’s FY2027 capital expenditure will reach $90-$95 billion, with operating activities consuming about $42 billion in cash, far exceeding the previously estimated $24 billion. S&P also noted that OpenAI accounts for about half of Oracle’s remaining performance obligations—indicating high customer concentration risk.
Oracle’s five-year CDS closed at 215 basis points on Monday, up from 144 basis points at the start of the year. Its 10-year bond yield is approximately 6.4%, close to the 6.7% level for BB-rated (junk) bonds, and significantly higher than the 5.7% for the BBB-rated curve. Moody’s maintains a negative outlook on Oracle, suggesting further downgrades are possible in the medium term.
Alphabet’s situation is also noteworthy. Its Q2 earnings report, released on July 22, showed revenue of $119.8 billion, up 24% year-over-year. Google Cloud revenue surged 82% to $24.8 billion, and cloud backlog exceeded $500 billion for the first time. However, capital expenditure doubled during the quarter to $44.9 billion, pushing free cash flow to negative $5.9 billion—the first time Alphabet has reported negative free cash flow since its listing over twenty years ago. Alphabet also raised its full-year capital expenditure guidance to $195-$205 billion and expects spending to remain significantly elevated in 2027. Its CDS rose to a record 67 basis points on Monday.
Meta’s signal is even more stark. The financing cost for its $12 billion data center project in Texas has risen sharply, approaching levels seen for junk bonds. John Aylward, Chief Investment Officer at Sona Asset Management, stated that the debt “is priced in line with the current trading levels of B- rated bonds.”
Aylward commented directly, “The credit market struggles with uncertainty, and the pace and cost of AI financing are highly unpredictable, leading to a serious crisis of confidence.”
George Catrambone, Head of Americas Fixed Income at DWS Group, noted that buying CDS has become a tool for investors to hedge against credit rating downgrades: “Hedging is becoming increasingly common, especially after seeing these capital expenditure numbers post-earnings. A huge amount of debt has been issued, yet it’s not necessarily proven to increase revenue. The market is applying more and more scrutiny.”
Pressure from the Bond Market Transmits to the Stock Market
Signals from the credit market are beginning to transmit to the stock market.
On Monday, the Philadelphia Semiconductor Index fell 2.23%, with NVIDIA (NVDA) dropping nearly 5%, AMD falling about 5%, and ASML declining over 5%.
The reaction in the South Korean market was more dramatic. On Tuesday during trading, SK Hynix fell by as much as 11.1%, Samsung Electronics dropped 9.5%, and the Korea Composite Stock Price Index (KOSPI) declined by up to 10%, prompting the Korea Exchange to activate the SIDECAR mechanism to halt programmatic selling. SK Hynix’s US-listed stock closed at $143.02, falling below its IPO price of $149.
Han Ji-young, an analyst at Kiwoom Securities, pointed out that this sell-off combines multiple factors: AI infrastructure financing risks, the impact of low-cost Chinese open-source AI models like Kimi K3 on expected computing demand, and competitive concerns from the listing of Changxin Memory Technologies.
Simultaneously, data center construction faces policy headwinds. New York State has implemented a one-year moratorium on new data center construction, and several other states like Maine, Minnesota, Michigan, and Pennsylvania are considering similar legislation.
Why Apple Came Out on Top
Year-to-date in 2026, NVIDIA (NVDA) stock has risen only 4%, while Apple (AAPL) has gained 24%.
Apple has been cautious with AI capital expenditure, preferring to lease computing power rather than build its own infrastructure. Its capital spending has been declining for the past three quarters. While NVIDIA and other hyperscalers bet thousands of billions on AI infrastructure, Apple chose a different path. Jay Woods of Freedom Capital Markets stated, “Apple was once criticized for under-investing in AI, but looking back, it has successfully avoided the capital expenditure trap.”
NVIDIA briefly touched a $5 trillion market cap, which happened last October. Since then, market doubts about the sustainability of AI infrastructure have deepened, and NVIDIA’s valuation premium has begun to narrow.
Apple’s test comes on Thursday. On July 30 after the market close, Apple will report its FY2026 third-quarter earnings—which will also be Tim Cook’s final earnings call as CEO before John Ternus takes over on September 1. Analyst consensus expects revenue of approximately $108.8-$110 billion, earnings per share of about $1.89, and gross margins of 47.5%-48.5%, lower than the previous quarter’s 49.3%—as memory chip price increases erode hardware profits.
In June, Apple raised prices for Mac and iPad due to memory chip shortages. The market expects this earnings report to quantify, for the first time, the financial impact of the AI-driven global memory chip shortage on Apple. Meanwhile, investor attention is shifting from GPUs to memory chips and other data center infrastructure, with Micron, SK Hynix, and SanDisk becoming new focal points.
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 is permanently increasing, and when we will see the inflection point leading back to positive free cash flow. We won’t have answers in the short term, which explains the weak performance.”
He further warned, “This could become a problem because there is still such a huge amount of financing demand waiting to be completed within the industry.”
What to Watch Next
First, Apple’s earnings report on Thursday. Key numbers to watch: whether gross margin can hold at 48% (impact from memory chip price increases), whether services revenue growth maintains double digits (the core support for Apple’s valuation premium), and management’s Q4 gross margin guidance (whether memory costs have peaked). Tim Cook’s comments on the CEO transition will also be scrutinized word-for-word.
Second, CDS trends. If the CDS for NVIDIA (NVDA), Oracle, Alphabet, and Meta continue to climb, the confidence crisis in the credit market will further transmit to the stock market. Societe Generale’s Manish Kabra has provided a new framework: watch CDS, not EPS. If Oracle’s CDS breaks above its current 215 basis points, it could trigger a follow-up downgrade from Moody’s.
Third, the final execution of NVIDIA (NVDA)’s financing transactions. If the $250 billion guarantee is signed, “circular financing” concerns will deepen. If terms are reduced or the deal is delayed, it could signal a slowdown in the pace of AI infrastructure investment. Also, watch for changes in NVIDIA’s guarantee book in its next quarterly 10-Q filing, tracking from the current baseline of $3.5 billion.
Fourth, whether the South Korean market can stabilize. SK Hynix falling below its $149 IPO price is a psychological threshold, and the subsequent trend of the KOSPI will reflect the market’s adjustment to expectations for AI chip demand. Whether HBM4 chip shipments grow as expected is the key fundamental factor for SK Hynix to stop its decline.
Fifth, data center regulatory developments. Whether more states follow New York’s data center moratorium will directly impact the physical expansion pace of AI infrastructure. The Commerce Secretary’s decision on power allocation for the Ohio project will also affect the timeline for OpenAI’s computing capacity deployment.
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