To The Moon

The cost of insuring against default by major North American tech firms has risen sharply since July, as detailed in a recent report from Everbright Securities. This trend highlights growing market unease over the sustainability of high capital expenditure and financing for AI infrastructure.

The data reveals three key characteristics. First, credit default swaps (CDS) for major North American tech companies have broadly widened since July, indicating that the market is increasing its pricing for credit risk related to these firms. Second, there is a clear divergence in borrowing costs among different companies, with Amazon's July bond issuance spread slightly higher than in March. Third, while capital spending by North American tech giants is expected to remain high through 2026, the year-on-year growth rate is projected to slow in 2027.

These shifts suggest the market is paying closer attention to investment returns, cash flow coverage, and financing plans. The credit market is demanding a higher risk premium for the high capital expenditure model driven by AI. Future monitoring should focus on trends in CDS, credit spreads, the pace of capital spending, and the realization of cash flows from AI businesses.

The recent widening of CDS for North American tech giants has drawn attention to the high capital intensity and financing sustainability of AI infrastructure. A CDS reflects the cost an investor pays to hedge against a company's credit risk; a rise signals that the market is demanding higher compensation for that risk. The report analyzed the 5-year CDS trends for companies such as Microsoft, Amazon, Alphabet, Meta Platforms, Inc., Oracle, NVIDIA, and SpaceX, alongside capital expenditure growth rates and 10-year bond issuance costs for these firms.

From early 2025 to the first half of 2026, the 5-year CDS for most of these companies traded in a 30-60 basis point (bp) range, except for Oracle. However, beginning in July 2026, CDS levels widened to varying degrees. Oracle's CDS recently rose above 200bp, while SpaceX's climbed to around 180bp. Meta Platforms, Inc., Broadcom, and NVIDIA saw rapid increases to the 75-100bp range, and Alphabet, Amazon, and Microsoft also experienced concurrent rises. The increase in credit risk pricing has spread from individual firms to multiple core companies in the AI supply chain, reflecting heightened concern in the North American bond market. Notably, on July 30, CDS levels for all these companies showed a slight pullback.

The 10-year bond financing rates for these tech giants ranged from 4.83% to 5.90%, with issuance spreads between 50bp and 145bp. NVIDIA and Alphabet had the lowest spreads at 50bp and 63bp, respectively, while Oracle, SpaceX, and Salesforce had the highest at 145bp, 140bp, and 135bp. These differences are influenced by factors like credit ratings, balance sheet quality, issuance timing, bond terms, and market supply and demand, with the divergence reflecting each company's unique credit profile and risk pricing.

Amazon's borrowing cost rose slightly between its March and July issuances. In March 2026, its 10-year bond had a yield of 4.90% and a spread of 75bp. By July, the yield on a new 10-year bond increased to 5.34%, with the spread widening to 80bp. The 44bp increase in yield is mainly attributed to changes in the benchmark US Treasury rate, while the 5bp widening of the credit spread indicates a modest increase in the credit risk premium.

Capital expenditure among leading North American tech firms remains in a rapid expansion phase. Since 2024, spending by Microsoft, Amazon, Alphabet, Meta Platforms, Inc., and Oracle has accelerated significantly. Combined capital spending for these five companies is expected to see faster year-on-year growth in 2026. This heavy investment in AI infrastructure continues to drive demand in the computing, networking, and data center sectors. However, it also intensifies market focus on the return cycle of these investments, cash flow generation, and future financing strategies.