Nvidia CDS soar to record highs, Oracle downgraded—as "circular financing" hits the bond ceiling

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The bond market is casting a vote against the unlimited expansion of AI infrastructure.

The financing frenzy surrounding AI infrastructure is sparking a chain reaction in the credit market. On Monday, ICE Data Services showed Nvidia’s five-year CDS saw its largest intraday surge in history, Oracle was downgraded by S&P, and Alphabet’s free cash flow turned negative for the first time—a credit market alarm that has spread from Nvidia to the entire group of hyperscale cloud providers.

Manish Kabra, Societe Generale’s Head of US Equity Strategy, said bluntly: “For hyperscale computing companies, now you need to watch CDS, not EPS (earnings per share).”

The immediate trigger for this round of volatility is Nvidia’s series of massive financing guarantee transactions in progress. According to media sources, Nvidia is negotiating with OpenAI to provide about $250 billion in financing guarantees to help OpenAI secure computing power for a 10-gigawatt data center project in Ohio; meanwhile, Nvidia is also discussing financing for a $350 billion chip procurement project for OpenAI. Combined with its previously announced $500 billion-plus cooperation with SK Group, the potential scale of AI infrastructure deals involving Nvidia has surpassed $750 billion.

The core market concern lies in the “circular” nature of these transactions: Nvidia provides financing or guarantees to clients, who in turn purchase Nvidia’s chips. Gary Tan, portfolio manager at Allspring Global Investments, stated, “More and more capital is being used to fund future AI customers and infrastructure deployments.” Should AI demand fall short of expectations, this pattern could magnify losses across the entire chain.

Nvidia’s stock fell 4.99% that day, with total market value dropping to $4.75 trillion, giving up its position as the world’s most valuable company to Apple. Apple rose more than 1% that day, with a total market value of $4.95 trillion, marking its first regain of the top spot since April 2025. The market noted that Apple remains cautious about AI capital expenditures, preferring to lease computing power rather than build its own infrastructure—a strategy that is being recognized by investors.

CDS Alert: Spreading from Nvidia to the Entire Industry

Nvidia’s five-year CDS surged about 14 basis points intraday, peaking at around 82 basis points per year—the largest intraday increase for these contracts since they began active trading in November of last year. According to ICE Data Services, this means it costs about $82,000 per year to buy five-year default protection for $10 million in Nvidia debt.

But the turmoil in the credit market extends far beyond Nvidia.

According to LSEG data, CDS prices for Oracle, SpaceX, Alphabet, Amazon, Meta, and Broadcom have all recently reached record highs. For example, Oracle’s five-year CDS on Monday was quoted at 215 basis points, up sharply from 144 at the start of the year—meaning it now costs $215,000 per year for $10 million in debt default insurance.

Oracle’s situation is especially grim. Last month, the company announced it would invest $70 billion over the next year in data center construction and was promptly downgraded by S&P Global Ratings to BBB-, just one notch above junk, citing “uncertainties in profitability trajectory amid massive AI investments.”

Alphabet’s condition is also noteworthy. Its CDS hit a record 67 basis points on Monday, after the company disclosed its free cash flow turned negative for the first time in over twenty years since it went public.

John Aylward, CIO of Sona Asset Management, candidly stated: “The credit market has a hard time dealing with uncertainty, and the pace and cost of AI financing are highly unpredictable, which is causing a severe crisis of confidence.”

Financing Costs Nearing Junk: Meta’s Data Center Sounds the Alarm

Soaring CDS prices reflect a substantial repricing of AI infrastructure financing in the bond market.

The most direct case comes from Meta. Its latest financing cost for raising funds for a $12 billion Texas data center has soared, now close to junk bond levels. John Aylward said the debt is “priced at levels consistent with current B- rated bonds... This is quite a surprising situation, but this is the world we live in today.”

This pricing signal is clear: investors are demanding higher risk premiums to absorb AI infrastructure debt, no longer treating it as ordinary investment-grade corporate debt.

David Brown, co-head of global investment grade at Neuberger Berman, posed the market’s core question: “The biggest issue is whether this level of capital expenditure will permanently grow, and when we’ll see a return to positive cash flow. We won’t have answers in the short term, which explains the recent weak performance.”

Brown further warned: “This could become a problem, as there is still such massive financing demand waiting to be completed in the industry.”

George Catrambone, Americas Head of Fixed Income at DWS Group, pointed out that buying CDS has become a tool for investors to hedge against credit rating downgrades and market volatility: “Hedging is becoming increasingly common, especially after seeing these capital expenditure numbers in company earnings reports. Massive amounts of debt have been issued, but they may not necessarily prove an increase in revenue. The market is imposing stricter scrutiny.”

Guarantee Chains: Google Binds with Anthropic, Systemic Risk Accumulates

This financing game is not unique to Nvidia. Tech peers are deeply involved in AI supply chain financing in similar ways.

Google has agreed to guarantee lease payments for Anthropic at five data center locations, helping this OpenAI competitor obtain about $35 billion in loans. This arrangement mirrors Nvidia’s guarantee for OpenAI: major tech companies use their own credit to help AI companies, which lack investment-grade ratings, get low-cost financing—while those AI companies then consume these tech giants’ cloud services, chips, or computing power.

Sal Naro, CIO of Coherence Credit Strategies, called this model “financial alchemy”: “Opaque, off-balance-sheet deals and inter-company relationships driven ‘financial alchemy’ are worrying, and could lead to credit downgrades.”

Billy Leung, investment strategist at Global X Management, noted, “Nvidia guaranteeing more debt for OpenAI’s data centers will further deepen the already scrutinized supplier financing model. This reflects the funding pressures during AI infrastructure buildout—and is also a demand signal.”

In response, Nvidia CEO Jensen Huang has maintained a different stance. In January, he said regarding Nvidia’s investment in CoreWeave: “It’s just a small portion of the funds they ultimately need to raise. Calling it circular financing—that’s ridiculous.” He believes these investments not only advance Nvidia’s own business but also yield investment returns.

Bond Market Pressure Transfers to Stocks: CDS Replaces EPS as the New Viewpoint

Credit market volatility has begun to transmit into the stock market and is changing how analysts observe hyperscale cloud providers.

Manish Kabra, Societe Generale’s Head of US Equity Strategy, said: “For hyperscale computing companies, now you need to watch CDS, not EPS. AI capital expenditure continues to outpace cash generation, pushing tech groups’ free cash flow to cycle lows.”

This judgment is already reflected in the market. On Monday, the Philadelphia Semiconductor Index fell 2.23%, Nvidia nearly 5%, AMD about 5%, ASML over 5%. Korea saw even more violent reactions: SK Hynix’s intraday drop reached 11.1%, Samsung Electronics dropped 9.5%, the KOSPI index dropped nearly 8%, and the Korea Exchange activated the SIDECAR mechanism to halt programmatic sell orders. SK Hynix’s US-listed stock closed at $143.02, below the $149 IPO price.

According to Reuters, Kiwoom Securities analyst Han Ji-young noted this round of selloff was driven by multiple factors: risks from AI infrastructure financing, the impact on computing power demand expectations due to low-cost open-source AI models from China (such as Kimi K3), and competitive concerns sparked by the IPO of Chinese memory chip maker CXMT.

Currently, the sustainability of AI capital expenditures remains the market’s biggest variable. The bond market’s repricing is setting an increasingly hard-to-ignore financing ceiling for the ongoing AI infrastructure boom.

Risk warnings and disclaimersThe market has risks, investments require caution. This article does not constitute individual investment advice and does not consider specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article suit their own circumstances. Investors are responsible for their own decisions. ```