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Lenders Seek Protection as Tech Firms Ramp Up Borrowing for AI
16 Nov
Summary
- Banks and money managers trading more derivatives to protect against tech defaults
- Cost of credit derivatives on Oracle's bonds more than doubled since September
- Trading volume for Oracle's credit default swaps jumped to $4.2 billion in 6 weeks
In the lead-up to 2025-11-16T00:38:25+00:00, tech companies have been gearing up to borrow hundreds of billions of dollars to fuel their investments in artificial intelligence (AI). However, this has prompted lenders and investors to look for ways to protect themselves against the risk of these tech firms defaulting on their debt.
Banks and money managers have been trading more derivatives that offer payouts if individual tech companies, known as "hyperscalers", default on their debt. This demand for credit protection has more than doubled the cost of credit derivatives on Oracle Corp.'s bonds since last September. Furthermore, the trading volume for credit default swaps tied to Oracle jumped to around $4.2 billion over the six weeks ended November 7, 2025, up from less than $200 million in the same period a year earlier.
As the tech industry continues to aggressively invest in AI, lenders and investors appear to be growing increasingly wary of the potential risks involved. They are taking proactive steps to safeguard their positions, underscoring the high stakes and uncertainty surrounding the tech sector's AI-fueled expansion.
