“Debt Burden Overshadows Growth Prospects” U.S. Big Tech Credit Risk Surges Amid AI Investment Race, OpenAI IPO Stalls as Uncertainty Mounts

CDS premiums surge across U.S. Big Tech amid mounting AI investment risks
Front-loaded investment compounds financial strain, pushing Oracle’s free cash flow into the red
OpenAI postpones IPO timeline amid profitability and regulatory uncertainty

Credit default swap (CDS) premiums for U.S. Big Tech companies are rising sharply across the board. As investment in data centers, semiconductors, power infrastructure and other assets needed to dominate the artificial intelligence (AI) market expands at a breakneck pace, credit markets are beginning to focus less on Big Tech’s growth potential and more on uncertainty over whether these investments can generate adequate returns. The delay in the initial public offering (IPO) of OpenAI, which has spearheaded the generative AI market, is further intensifying investor caution.

Nvidia’s CDS Premium Soars

According to Bloomberg on the 28th, Nvidia’s five-year CDS premium surged by 14 basis points (1bp=0.01 percentage point) during trading on the 27th, reaching 82bp. This marked its steepest increase since active trading in the swaps began last November. A CDS is a form of insurance designed to cover losses if a bond issuer defaults or fails to meet its debt obligations. An increase in CDS premiums does not necessarily indicate that a company’s actual probability of default has risen; rather, it suggests that the market is assigning a higher level of credit risk to the company than before.

The rise in CDS premiums appears to have been driven by a recently announced large-scale AI investment plan. Nvidia signed a letter of intent (LOI) with SK Group at an AI summit held in San Francisco on the 24th for comprehensive business cooperation worth $500 billion. SK Telecom plans to build up to 2 gigawatts (GW) of AI cloud infrastructure in South Korea based on Nvidia’s “DSX” data center design platform. The facility will deploy Nvidia’s next-generation Vera Rubin computing systems and SK Hynix’s sixth-generation high-bandwidth memory, HBM4, and is scheduled to begin operations in 2027. Nvidia also plans to establish a long-term partnership with SK Hynix to secure a stable supply of next-generation AI memory and pursue joint product design.

Signs of Overheating in Big Tech’s AI Investment Race

Credit-risk indicators for other major U.S. technology companies are also climbing by the day. According to the Financial Times, citing data from financial information provider LSEG, CDS premiums for Alphabet, Amazon, Meta and Broadcom have recently reached successive record highs. Meta’s five-year CDS premium climbed to approximately 94bp as of the 27th, while Amazon’s rose to 69bp, Alphabet’s to 67bp and Broadcom’s to around 66bp.

The primary factor driving up these companies’ CDS premiums is the unprecedented investment race to dominate the AI infrastructure market. Alphabet, Amazon and Meta have announced combined capital expenditure plans of between $520 billion and $550 billion for this year. Investors have recently shown an increasing tendency to regard this massive spending less as a growth strategy for expanding AI revenue and more as a financial burden and source of risk. The concern is that there is no guarantee today’s enormous expenditure will ultimately translate into monopolistic profits from AI services.

The Risks of Front-Loaded Investment in the AI Market

Such concerns stem from the front-loaded investment model inherent in the AI infrastructure business. To secure an early lead, AI infrastructure providers must acquire graphics processing units (GPUs), data center sites, power-grid capacity, cooling systems, high-speed networks and other essential infrastructure before sufficient customer demand has been confirmed. Unlike conventional cloud businesses, which could expand server capacity incrementally in step with customer growth, AI infrastructure requires companies to commit vast amounts of capital at the outset and then gradually increase utilization rates and revenue.

The problem is that Big Tech companies are becoming increasingly reliant on external financing—including corporate bonds, project finance and long-term lease agreements—to fund their massive AI investments. Commitments involving data center buildings, power-supply contracts and lease obligations commonly extend for more than a decade. Even if demand grows more slowly than expected or intensifying price competition in AI services reduces unit revenue, these costs cannot easily be cut in the short term. Interest expenses, rental payments and depreciation continue to accrue even when servers and power facilities are not operating at sufficient capacity. If this trend persists, growth in operating cash flow may fail to keep pace with rising investment and financing costs, driving up both the borrowing rates required for additional debt and the companies’ credit risk.

Oracle’s Finances Come Under Strain

Oracle provides a clear illustration of the risks associated with front-loaded AI investment. The company has raised substantial external financing to fulfill large cloud contracts signed with AI companies. Notably, it issued $18 billion in corporate bonds last September and another $25 billion in February this year. Its spending has also risen sharply. Oracle’s capital expenditure reached $55.7 billion in fiscal 2026, surging approximately 163% from $21.2 billion the previous year, while free cash flow posted a deficit of $23.7 billion. Despite generating $32 billion in operating cash flow over the same period, spending far exceeded that amount, weakening the company’s financial position.

The market has responded immediately to these risks. Oracle’s five-year CDS premium reached 215bp on the 27th, up 71bp from 144bp at the beginning of the year. That represents an increase of approximately 49%. On the same day, the yield spread between Oracle’s bonds maturing in 2056 and U.S. Treasury securities widened to 263bp. Global credit rating agency S&P also recently announced that it had downgraded Oracle’s credit rating by one notch, from “BBB” to “BBB-.” The agency cited the rapid expansion of Oracle’s AI infrastructure business, which is weakening the company’s traditionally stable business structure centered on software. BBB- is the lowest investment-grade rating, sitting just above speculative-grade, or junk-bond, status.

OpenAI Delays IPO Plans

OpenAI, which has led the generative AI boom, has also struggled in recent months. The company began its IPO process last month by confidentially filing an S-1 registration statement with the U.S. Securities and Exchange Commission (SEC). Its advisers reportedly presented OpenAI with two options: lower its valuation somewhat and go public this year, or wait until 2027 to seek a valuation of $1 trillion. OpenAI CEO Sam Altman is said to remain adamant that he will not accept a valuation below $1 trillion. OpenAI’s most recently confirmed valuation was $852 billion, established when the company raised $122 billion in March this year.

It remains uncertain, however, whether OpenAI’s valuation will continue rising as rapidly as the company expects. OpenAI is maintaining its target of tripling revenue this year from $13 billion last year, but its current monthly revenue remains at approximately $2 billion. Weekly active users have also stalled at around 900 million, contrary to expectations that the figure would comfortably surpass 1 billion this year. OpenAI has begun testing advertising and e-commerce features within ChatGPT to diversify its revenue streams, but given the enormous scale of its investment, the company is expected to require more time before reaching profitability.

U.S. government regulation represents another source of risk. According to The Information, the Trump administration recently asked OpenAI to provide its latest model, GPT-5.6, on a priority basis only to a small group of government-approved partners. The White House has insisted that the measure does not constitute a licensing or prior-approval regime. Nevertheless, market concerns have shown little sign of subsiding, particularly after Anthropic temporarily suspended its Fable 5 and Mythos 5 services under government orders in the middle of this month. This inevitably presents a substantial burden for OpenAI as it prepares to go public. If the government gains influence over when AI models are released and to whom they are made available, it will become more difficult to determine when flagship new products will begin contributing to revenue, and OpenAI will be required to disclose these risks in its prospectus.