The world's largest technology companies borrowed nearly $200 billion in the first half of 2026 to fund AI infrastructure. The surge has pushed credit default swap spreads higher and revived talk of an AI bubble. Analysts say the alarm largely misreads the signal.
Amazon, Alphabet, Meta and Oracle issued approximately $195 billion in bonds in the first six months of the year, up roughly 80% from the $108 billion they raised in all of 2025, according to a Reuters analysis of LSEG data. Goldman Sachs estimates the five major cloud hyperscalers — those four plus Microsoft — could issue $250 billion in bonds this year and as much as $400 billion by 2027, compared with just $16.7 billion in 2024 and $13.7 billion in 2023.
Tech CDS Markets Remain Marginal Despite Record AI Borrowing
The bond surge has drawn attention to a little-watched corner of the credit markets: credit default swaps. CDS contracts function as insurance against default. Wider spreads are conventionally read as rising anxiety about repayment capacity.
In practice, the tech CDS market remains remarkably thin. DTCC data show that in the second quarter of 2026, 16 technology companies averaged only $637.5 million in combined daily CDS notional volume — about 4% of the $16 billion daily total across all corporate and sovereign issuers. The sector averaged just 54 CDS transactions per day, with Oracle accounting for roughly one-third. Most others averaged fewer than five trades. Apple recorded none. Six months earlier, in the fourth quarter of 2025, the same group averaged only $105,000 in daily notional and eight trades per day. Alphabet, Meta and Nvidia had no outstanding CDS contracts at all.
More AI Bonds Mean More Hedging, Not More Default Risk
Reuters columnist Jamie McGeever argues the widening of tech CDS spreads is more likely a mechanical consequence of rising bond supply than genuine distress. As issuance expands, bond investors need to hedge larger exposures — and CDS, he writes, is "a relatively straightforward and cheap vehicle to hedge against their increasing exposure to the AI sector."
A wider spread largely reflects the market pricing insurance for a bigger pool of debt. In a thinly traded market, even modest hedging flows can produce outsized price moves.
How Oracle's S&P Downgrade Distorts Big Tech Default Risk
One company stands apart as a genuine credit concern. Oracle's $130 billion debt load prompted S&P Global Ratings to cut its credit rating to BBB- on Aug. 4 — one notch above junk. Its CDS spread has climbed from roughly 40 basis points a year ago to more than 200 basis points.
Oracle's capital expenditure reached $55.7 billion in its most recent fiscal year against operating cash flow of $32 billion, consuming 174% of operating cash flow, up from 47% in fiscal 2022. Free cash flow has turned negative. Shares have fallen 36% this year. The company plans to raise $45 billion to $50 billion in additional debt and equity to fund its cloud expansion.
Société Générale strategists estimate that U.S. hyperscalers as a group now carry an implied cumulative default probability of approximately 7% — higher than last year and above the roughly 4.5% average for U.S. investment-grade companies. The bank notes the figure is "materially" inflated by Oracle's individual implied default probability of more than 16%. The picture for other hyperscalers is far less alarming.
None of these companies has ever defaulted on debt. The signal the CDS market is sending, Société Générale argues, is closer to "investors need to pay more to hedge larger credit exposure" than any conviction that default is imminent.
Why Alibaba And Tencent Face The Same AI Monetization Reckoning
The pressure is not confined to American balance sheets. In China, Alibaba Group and Tencent Holdings face a parallel race, escalating capital expenditure against domestic rivals and U.S. competitors. Analysts say the battlefield has rapidly shifted from model capabilities to capital efficiency and return on investment.
Revenue at Alibaba's cloud unit rose 38% year on year in the March quarter. AI-related products generated nearly 9 billion yuan ($1.3 billion), marking an 11th consecutive quarter of triple-digit growth. The company expects its AI annualized recurring revenue to reach 30 billion yuan by year-end.
HSBC estimates the total addressable market for enterprise AI at $1.4 trillion globally, with $178 billion in China alone. Morgan Stanley projects that AI infrastructure rentals, model access and AI-enabled services could eventually generate returns of 25% to 50% — enough in theory to justify today's spending wave.
AI Capex Is Now Crushing Big Tech Free Cash Flow
The more immediate risk may not be default. Big Tech is financing what analysts describe as the largest capital expenditure boom in history, and the arithmetic is tightening. A Reuters analysis of LSEG data shows the five hyperscalers are projected to generate about $340 billion more in operating cash flow in 2027 than in 2025 — but capital expenditure is expected to rise by $534 billion, roughly $1.57 of investment for every additional dollar of cash flow.
Microsoft's most recent quarter saw capital expenditure of $37.5 billion exceed operating cash flow of $35.8 billion. Amazon's free cash flow fell to just $1.2 billion in the first quarter even as trailing 12-month operating cash flow rose 30% to $148.5 billion. Alphabet recorded its first-ever negative quarterly free cash flow as AI outlays outpaced revenue. Meta, despite posting $60.8 billion in second-quarter revenue and beating expectations, saw shares fall roughly 8% in after-hours trading on a decline in free cash flow.
Société Générale estimates that hyperscaler free cash flow has collapsed and is about to turn negative, remaining under pressure for at least two years before eventually recovering and surpassing prior peaks.
The Real Test Is Revenue, Not Default Risk
The central question is not whether these companies will default — analysts consider that remote. The question is whether the AI buildout will generate sufficient revenue, margin expansion and cash flow to justify the investment.
"Over the next two to three years, companies need to show that AI is driving incremental revenue, expanding margins and improving cash flow," Freddy Lavric, senior trader at Winthrop Capital Management, told Reuters. "If those benefits aren't evident by then, the market will start questioning whether the investment cycle has gone too far."
If AI-driven growth catches up with capital expenditure and debt expansion, today's weaker credit metrics may prove to be temporary side effects of a new investment cycle. If returns disappoint, the current CDS volatility could harden into something more serious. For now, as McGeever puts it, major credit events still appear to be "small dots on the horizon."
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