Big Tech AI Debt Sales Drive Up Global Credit Risk

Massive debt sales by U.S. technology hyperscalers to fund artificial intelligence ambitions are driving up credit risk metrics for some of the world's safest firms. Strategists at BNP Paribas SA report that borrowing sprees by companies including Meta Platforms Inc., Alphabet Inc., and Amazon.com Inc. have intensified competition for investor capital, pushing up credit default swap (CDS) spreads for unrelated high-quality entities such as LVMH, Sanofi, and BAE Systems Plc.

Since the end of last year, swap spreads for these unrelated firms have climbed by more than 10%. Analysts warn this creates a trend where spreads converge toward the index average, which reduces the risk buffer for high-grade credits if market conditions deteriorate. This phenomenon is affecting markets in the UK, Japan, and Switzerland, potentially repricing the broader investment-grade market.

Redhedge Asset Management characterized the trend as a potential wake-up call for the credit market, noting that it is unsustainable for the market to tighten without significant movement. BNP Paribas analysts suggest that high-quality credit now competes directly with hyperscalers for available capital.