The rise of credit default swaps (CDS) as a hedge against the AI boom has captured attention, reminiscent of their use in “The Big Short.” According to the Financial Times, CDS purchases surged by 90% since early September, aiming to protect against perceived volatility in tech stocks. With monthly volumes potentially skyrocketing from $2 billion to over $8 billion by December, hyperscalers like Meta and Oracle have become prime targets. Oracle stands out due to its inflated stock, despite missing revenue predictions and reporting flat net income. Recent delays in data center projects have further unsettled investors, contributing to a tripling of Oracle’s CDS trading volume this year. Hedge fund Bridgewater Associates has cautioned about a potential bubble in AI investments, indicating rising fears of defaults on Wall Street. As more market participants seek insurance against potential downturns, the landscape suggests mounting concern for the sustainability of current valuations.
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