Key Points:
- Big Tech firms are borrowing heavily to fund expensive AI projects.
- Investors are buying credit derivatives to protect against potential defaults.
- Alphabet recently sold $32 billion in bonds, including 100-year notes.
- Borrowing by tech giants is expected to hit $400 billion this year.
Investors are getting nervous about how much money Big Tech companies are borrowing. Giants like Amazon, Alphabet, and Meta are racing to build the best artificial intelligence, but that race costs trillions. To fund it, they are taking on massive amounts of debt. Now, banks and investors are rushing to buy financial protection in case these tech leaders cannot pay their bills.
This fear has jump-started the market for credit derivatives. These are financial contracts that act like insurance against a company going broke. A year ago, almost nobody traded these contracts for top tech firms because they looked financially invincible. Today, they are some of the most active trades outside of the banking sector. Data shows that contracts tied to roughly $895 million of Alphabet’s debt are currently active.
The cost of the AI revolution is staggering. Experts expect investments to top $3 trillion. Morgan Stanley predicts these cloud giants will borrow $400 billion this year alone, a huge jump from $165 billion in 2025. Alphabet recently sold $32 billion in bonds to pay for its expansion, including some notes that will not mature for 100 years.
Banks are driving much of this demand for protection. When a bank helps a tech company raise billions for a new data center, it takes on immediate risk. It takes time to sell that debt to other investors. During that waiting period, banks buy insurance to keep their own balance sheets safe.
Not everyone is scared, though. Some hedge funds see this as a chance to make money. They believe companies with trillion-dollar values remain safe bets. These funds are selling the insurance, betting that Big Tech will stay solvent. However, cautious traders argue that the sheer amount of debt makes the future risky. If the AI boom slows down or profits don’t arrive fast enough, these massive bills could become a serious problem for the entire market.
